ARM Update

January 16, 2018

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:



Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

Vining Sparks, IBG

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2023
This is a publication of Vining-Sparks IBG, LLC
775 Ridge Lake Blvd., Memphis, TN 38120