ARM Update

June 26, 2017

Demand for new-issue hybrid ARMs picked up last week, which resulted in yield spreads to Treasuries tightening 1 to 2 bps.  This was a divergence from the recent trend in which ARMs under-performed fixed rates for most of the month because of heavy supply (issuance) and seasoned selling in the secondary market.  Yield spreads have widened 7 bps during June and 25 bps since the end of February.  As a result, dollar prices are actually lower despite a rally in interest rates over this time period.

The flatter yield curve and wider secondary spreads have made ARMs slightly less compelling for borrowers. The rate differential between a 7/1 and 30-year fixed mortgage narrowed from 59 bps during May to 50 bps in June.

We continue to favor longer resets (7/1s and 10/1s) as valuations remain relatively inexpensive and these structures compare favorably to 15-year MBS.

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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