February 19, 2019
Yield spreads on hybrid ARMs to Treasuries tightened 2 to 4 basis points last week, which was the result of a modest bond market sell-off that generally sent yields higher across the curve. Spreads have tightened recently but remain wider compared to levels at the start of December.
The ARM origination cycle continued last week, with 475.3mm in new issue ARM selling primarily from Fannie Mae (286.8mm). Supply was focused in Fannie Mae 5/1s (84.7mm) and 7/1s (144.7mm) along with Freddie Mac 7/1s (79.6mm). Freddie Mac also contributed to gross issuance with 18.9mm in 5/1s. Fannie Mae and Freddie Mac also contributed to longer-reset 10/1 issuance with 56.5mm and 59.1mm, respectively. The recent selloff and mortgage tightening bodes well for ARM demand during the origination cycle, particularly given the attractive spreads in the sector.
Last week, ARM activity was spread across a variety of lists and primarily focused on the following:
- New issue Fannie 10/1s with ~4.4% WACs traded at a moderate premium ($102+).
- New issue Ginnie 3/1 2.5s with ~ 30 months to reset traded at a slight discount.
Ricky Brillard, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP