ARM Update

July 30, 2018



Demand picked up in ARMs last week, as investors purchased new-issue ARMs.  The basis has tightened in July, which has richened relative value versus fixed-rate MBS.  Furthermore, negative net issuance resulting from the flatter curve should be supportive of spread tightening in ARMs.  Gross supply for July is only up to $1 billion, a significant decrease relative to the $3.4 billion issued during the seasonal peak last July.

Tighter fixed-rate valuations, a 10-basis point selloff in rates, and lower issuance have all served as a tailwind for the ARM sector in July, and as a result, ARMs have rebounded from the 2018 wides in late June.  Further upside should continue for the ARM sector, particularly if demand for 15 years and other short-duration mortgage product continues.

 

Last week, activity was primarily focused on the following:

 

 

The following chart reflects the week over week change in LIBOR option-adjusted spreads for ARMs. GNMA ARM OAS’s widened, while FNMA and FHLMC OAS’s tightened.

 

 



 

 

 



Ricky Brillard, CPA

Strategist

Vining Sparks, IBG

INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
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 © 2021
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120