Prepayments on U.S. mortgage bonds fell in April due to a drop in collection days and a slowdown in mortgage applications, Wall Street analysts said on Friday.

Overall fixed-rate agency prepayments fell by about 18 percent last month, with pay-downs falling to $52 billion from $65 billion in March, JP Morgan said in a research report.

Net fixed-rate issuance was approximately $7 billion, which leaves year-to-date net issuance close to zero.

"We expect over $10 billion in net fixed-rate issuance in May, as prepays dip again and supply rises," JP Morgan said.

Aggregate prepayment speeds on 30-year mortgage-backed securities declined by 21 percent to an 18.7 percent conditional prepayment rate, or CPR, according to Morgan Stanley. The CPR was 23.8 percent in March.

The CPR is the principal measure that traders and investors use to quantify prepayment activity in mortgage pass-throughs.

A fall in the CPR reflects a lower likelihood of bonds being prepaid sooner than expected, which typically causes investors to hold the funds in their portfolios longer, rather than reinvesting them as interest rates rise.

The prepayment changes on mortgage-backed securities were in line with or slightly slower than Wall Street expectations, with the speed on Freddie Mac's mortgage bonds declining more than Fannie Mae's issues.

"Freddie Mac offers 'incentives' to originators for lower refinancing behavior and consequently discount speeds are more representative of actual turnover," JP Morgan said.

Ginnie Mae mortgage bonds showed a slower drop than conventional Fannie Mae and Freddie Mac bonds, slowing by 13 percent in April, according to Citigroup research.

"Mortgage originators prefer to go after larger, more profitable, easier-to-process conventional loans when refinancing activity picks up," the company said.

One reason behind the decline in prepayment speeds was a one-and-a-half-day drop in business days, according to Citigroup. The speeds also reflect a slowdown in mortgage applications in late March and early April.

Pay-downs on fixed-rate MBS are seen falling by 8 percent to 10 percent in May, according to JP Morgan. Even though May has the same number of collection days as April, the seasonal turnover is typically 10 percent higher. Also, the Mortgage Bankers Association's refinancing index implies a 10 percent decline.

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