ARM Update

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:

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

Investment Strategist

Vining Sparks, IBG

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