ARM Update

August 14, 2017



Yield spreads for new-issue hybrid ARMs to Treasuries widened 1 to 2 bps on the week, as the broader bond market moved higher in price because of geopolitical concerns. Hybrid ARMs have cheapened significantly from the beginning of the year.  This has largely been due to a supply increase resulting from an improvement in gross issuance.  Total monthly issuance has averaged $3.2bn during the past three months, which is more than double the volume during the same time period in 2016.  Borrowers tend to opt for ARM products when the rate differential between longer fixed-rate mortgages and ARMs widens.  The chart depicting the trend in the differential rate between a 30-year fixed-rate mortgage and a 5/1 Hybrid ARM can be seen below.

Activity last week consisted of the following:

 



 

Metrics for some commonly traded structures are below:







 

 


Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

Vining Sparks, IBG

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