ARM Update

May 15, 2017

Yield spreads for new-issue hybrid ARMs to Treasuries were relatively stable, widening by approximately 1 basis point for the week.  Demand for ARMs continues to be steady because of wider spreads relative to earlier in the year, investors positioning for higher interest rates, and tightening spreads in the fixed rate mortgage sector.  The recent tightening trend in fixed-rated mortgage products has increased the relative attractiveness of new issue ARMs (longer reset types), which offer a pick-up of 10-15 basis points of OAS versus 15-year fixed rate alternatives.

Activity last week was focused on 7/1 3.0s and GNMA 3/1 2.0s.  GNMA 3/1 2.0s are now trading near a $101 price, which helps mitigate prepayment exposure.


Metrics for some commonly traded structures are below:

Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

Vining Sparks, IBG

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