February 25, 2019
Yield spreads between hybrid ARMs and Treasuries held firm last week, as the broader bond market moved up in price, sending yields slightly lower across the curve. Hybrid ARM spreads have tightened in the month of February, lagging the performance of fixed-rate MBS, which have tightened at a slightly more aggressive rate.
New issue ARM flows were light last week, with 87mm in new issue ARM selling primarily from Ginnie Mae (43mm). Supply was focused in Ginnie Mae 5/1s (43mm), Freddie Mac 7/1s (13.2mm), and Fannie Mae 7/1s (12mm). Freddie Mac and Fannie Mae also combined for gross issuance of 11.4mm in hybrid ARM 5/1s and 7.4mm in hybrid ARM 10/1s. 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 Ginnie 5/1 3s with ~ 5 years to the reset and price volatility less than 11.5% +300 traded at a slight premium.
- New issue Freddie Giant 10/1s with ~4% WACs traded at a moderate premium ($101+).
- Seeing more odd-lot bid lists as investors are selling factored-down positions.
Ricky Brillard, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP