February 5, 2018
Most mortgage-related sectors experienced some degree of spread widening in the face of the bond market sell-off in recent trading sessions. However, yield spreads on new-issue hybrid ARMs to Treasuries have tightened approximately 1 to 2 basis points over the past two weeks. The performance speaks to the traditional tendency for investors to favor variable-rate and/or lower duration products when interest rates begin a rather rapid ascent.
Activity last week was primary focused on the following:
- New issue conventional 7/1s (compare favorably to 10- to 20-year MBS in terms of yield, price volatility, and OAS)
- GN 3/1 2.0s and 2.5s
- GN 5/1 2.5s (prices have declined to near par)
There was some selling in the secondary market of moderately-seasoned 7/1s (5/2/5 cap structure) with approximately 60-months to the reset date.
Finally, new issuance for January totaled $1.5 billion vs $1.7 billion for the previous month. Approximately 65% of the supply in January was made up of 5/1s and 7/1s, and 7/1s lead all categories with $587 million in production.
Metrics for some commonly traded structures are below:
Michael S. Erhardt, CPA
Senior Vice President
Vining Sparks, IBG