Yield spreads on new-issue hybrid ARMs to Treasuries tightened 1 to 2 basis points last week. Higher yields and cheaper valuations relative to fixed-rate MBS have caused ARMs to tighten to begin the year. Lighter supply has also triggered a portion of the tightening. The majority of activity among our customers has centered on continued buying of new issue 7/1s. As depicted on the table below, 7/1s compare favorably to 10- to 20-year MBS with a similar projected yield, lower effective duration, and a pick-up of OAS of 14 to 22 basis points.
Metrics for some commonly traded structures are below:
