August 27, 2018
In the latter part of last week, the ARMs sector was very quiet, as seasoned selling and August origination died down. In total, approximately 1.5 billion in secondary ARM supply has come to market in August, around a billion of which came last week. The wave of seasoned selling has been met with customer interest from a broad set of account types, but the sheer volume of supply, which has been roughly equal to a full month of origination, has weighed on longer reset spreads and caused ARMs to underperform fixed rates this month.
Last week, activity was primarily focused on the following:
- 5/2/5 cap structure seasoned 5/1 hybrid ARMs with 4 to 5 months to reset (MTR) traded above par
- Short reset Fannie Mae 5/1s with WACs near 3.2% traded at a moderate premium
- In seasoned space, short reset Fannie 7/1s maturing in 23-years with coupons near 3.5% traded above par
- 5/2/5 cap structure 87 month seasoned 10/1 hybrid ARMs with 33 months to reset (MTR) traded above par
- G2 5/1 3s with 26 months-to-reset (MTR) traded at a moderate premium
- Swaps and portfolio cleanups for underperforming bonds sold in 2012 and 2013 and reinvested at higher rates
The following chart reflects the week over week change in LIBOR option-adjusted spreads for ARMs. GNMA ARM OAS’s tightened, while FNMA and FHLMC OAS’s widened on shorter resets and tightened on resets greater than 5 years.
Ricky Brillard, CPA
Vining Sparks, IBG