May 1, 2017
Yield spreads for new-issue hybrid ARMs to Treasuries remained relatively stable last week, tightening 2 to 3 bps. This improved tone comes after spreads spent the majority of the month widening out due to heavy selling in the seasoned space combined with higher levels of issuance. April supply numbers are continuing to build, but as of 4/27, $2.4 billion had been issued. This is a 30% increase over March and a 70% increase over the end of last year. Issuance should continue to be robust over the next few months.
Activity last week was focused on new issue 7/1s and 10/1s, as buyers reemerged in order to take advantage of the still wide spreads and higher yields from the small bond market sell-off. 10/1s remain slightly cheaper than 7/1s as they have lagged the spread tightening of late. We also saw continued demand for 3/1 2.0s and 5/1 2.5s.
Michael S. Erhardt, CPA
Senior Vice President
Vining Sparks, IBG