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


Vining Sparks, IBG

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