Correlation Between Mortgage Benchmarks
Mortgage Rate (OB30C) futures will be launched on January 13, 2025, and will be cash settled to the Optimal Blue 30-Year Fixed Rate Conforming Index (OB30C). [1]
Many mortgage servicers commonly use the Freddie Mac Primary Mortgage Market Survey (PMMS) index to mark the risk of their servicing books. This article compares the returns of the two indices and finds that there is a strong correlation (see Figure 1). Since PMMS is calculated weekly but OB30C is calculated daily, the weekly average of OB30C index values were used.
Figure 1: OB30C vs. PMMS
It is noteworthy that the PMMS was historically survey-based while OB30C uses loan application data. On November 17, 2022, Freddie Mac switched from using survey-based data to using loan application data. Since this change, the correlation between returns has been much stronger (Table 1).
Table 1: Correlation between OB30C and PMMS returns
Sources: Freddie Mac and Optimal Blue
Given the strong correlation between the two indices, Mortgage Rate (OB30C) futures can potentially serve as an effective hedge for books that are marked using the Freddie Mac PMMS.
For more information on Mortgage Rate futures, see the SER for details.
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[1] Pending all relevant regulatory review periods and/or approvals (include link to SER once published).
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
