ARM Update

July 24, 2017

Z-spreads for new-issue hybrid ARMs were 2 to 3 bps wider on the week, in response to the increased level of supply from originations and broader bond market rally.  In contrast, 15-year fixed rate MBS have tightened 2 to 3 bps over the past two weeks.  Month-to-date ARM issuance currently stands at $3.2bn, the highest since January 2015, and more than double the level of issuance from December 2016.  The trend in heavier supply has resulted in Z-spreads widening approximately 20 bps over the past four months. As we have previously mentioned, the underperformance of ARMs versus other MBS product has significantly enhanced OAS profiles for longer reset new-issue hybrid ARMs.  FNMA and FHLMC 7/1s offer approximately 20 bps of OAS compared to 15-year fixed MBS with OAS running around 5bp or so.


Activity last week included the following:


Metrics for some commonly traded structures are below:


Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

Vining Sparks, IBG

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