ARM Update

August 28, 2017



Yield spreads for new-issue hybrid ARMs to Treasuries were unchanged on the week, after tightening 5 bps the previous week.  Weakening supply has been a tailwind for the sector and could continue to be, as August issuance is expected to be approximately 30% less than July.

There was strong demand for post-reset hybrid ARMs last week.  Investors focused on buying seasoned conventional paper with a weighted average loan age of 65 to 75 months and coupons ranging from 3.20% to 3.40%.  Buying activity has picked up after prepayment speeds declined during July.

New-issue hybrid ARMs remain attractive to fixed-rate MBS on a relative value basis.  Buyers have primarily focused on longer-reset structures (new issue 7/1s and 10/1s).  As outlined in the table below, new issue 7/1s and 10/1s offer similar yields as 3.00% 15-year MBS, but better OAS profiles.



Metrics for some commonly traded structures are below:








 


Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

Vining Sparks, IBG

INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
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
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120