ARM Update

March 25, 2019



Yield spreads between hybrid ARMs and Treasuries widened 1 to 2 bps last week, despite the second straight week of spread tightening experienced in fixed-rate MBS.  ARMs underperformed their fixed-rate MBS counterparts, with yields tightening on this product approximately 1 to 7 basis points for the week.  ARM spreads have been relatively stable partially because of the lack of supply in the market.



The ARM origination cycle continued last week, with 433.4mm in new issue ARM selling primarily from Fannie Mae (215.7mm).  Supply continued to be focused in Fannie Mae 7/1s (167.8mm) and Freddie Mac 7/1s (86.2mm).  Freddie Mac contributed to gross issuance with 57mm in 5/1s 45.7mm in 10/1s.  Fannie Mae and Ginnie Mae also contributed to 5/1 issuance with 30.3mm and 28.5mm, respectively.  ARM issuance levels increased between December 2018 and January 2019 but have experienced a slow down since February 2019.



Last week, ARM activity was spread across a variety of lists and primarily focused on the following:

 

 

The desk continues to look to bid odd-lot positions for clean-up.  The disposition of odd-lot positions can result in enhanced transactional liquidity and higher earnings.  Also, this is an opportunistic time to consider eliminating smaller line items that are subject to standard safekeeping and accounting fees that are more palatable for larger block sizes.

 

The following chart reflects the week over week change in Z-spreads for ARMs.  Z-spreads widened for GNMA, but tightened for FNMA and FHLMC products.




 



Ricky Brillard, CPA

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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