ARM Update

July 2, 2018

The following chart reflects the week over week change in LIBOR option-adjusted spreads for ARMs:

The contraction of primary/secondary spreads this year should help new issue ARM performance if rates continue to grind lower.  In 2016, the dollar price on production coupon new issue 7/1s was generally ~103, and in 2017, new issue 7/1s hovered in the 102s.  However, dollar prices are currently much lower.  For instance, during the most recent origination cycle, the majority of 7/1s traded between par and 101.  If a further risk-off rally were to materialize, faster prepayment speeds would be less detrimental to recently issued ARMs than in past environments given the lower premiums.


To start the week, flows were on the lighter side in ARMs, following the prior week’s busy origination cycle.  Activity was primarily focused on the following:


Right now, investors should consider new and moderately seasoned hybrid ARMs (i.e. 7/1s and 10/1s with 48-84 months to roll with 5/2/5 caps) for the following reasons:



Ricky Brillard, CPA


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