ARM Update

April 30, 2018



Yield spreads between hybrid ARMs and Treasuries moved wider by 2 to 3 bps for the month of April.  Weighted average coupons for new-issue pools increased 20 to 30 bps as the result of higher mortgage rates.  Yields improved in April as well, leaving dollar prices only marginally higher month over month, despite the higher coupons.  Given the tightening of fixed-rate MBS this month due to declining volatility and increased demand, the underperformance of ARMs has left new issue ARMs looking more attractive on a relative basis.

The origination cycle finished up last week, and volumes are expected to rebound from the recent lows seen in March ($991mm) to be more in line with late 2017 levels ($1.7bn to $2.0bn).  Finally, there was a great deal of seasoned selling in the secondary market last week, with over $500mm of post-reset bonds exchanging hands.  Most of this activity consisted of 5/1s with a weighted average loan age of 150 months or less.

 

Last week, activity was primarily focused on the following:

 





Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

Vining Sparks, IBG

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