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

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120