August 13, 2018
Last week, ARM activity was primarily focused on the following:
- Two-way flows in short resets, with seller redeploying proceeds into either fixed rate MBS or longer reset hybrids
- New issued GNMA 3/1 production
- 7/1 and 5/1 hybrids with two years or less of seasoning, with appropriate coupons to result in prices between par and 102
- Swaps and portfolio cleanups for underperforming bonds sold in 2012 and 2013 and reinvested at higher rates
While issuance remains slow, recent supply trends produced adequate volume to result in mostly steady yield spreads versus similar duration Treasuries.
ARM prepayments slowed slightly for July, in line with the slowdowns occurring for most fixed rate MBS. Seasonal trends in housing turnover and fixed rate mortgage quotes holding near the upper end of their recent range limited early ARM payoffs and the trend is expected to continue with slower or stable prepayments in the coming months barring large bond market yield changes.
Ricky Brillard, CPA
Vining Sparks, IBG