November 13, 2017
Yield spreads for new-issue hybrid ARMs to Treasuries remained stable for the second consecutive week, as the overall bond market traded in a narrow range that resulted in minimal increases to yields.
Activity last week included the following:
- New issue 7/1’s (offer 15-20 bps of OAS over 15-year MBS)
- New issue GN 3/1 2.00’s
- G2 5/1 2.50’s (offer 10-15 bps of spread pickup compared to conventionals)
There is continued demand for seasoned G2 ARMs with a weighted-average loan life of 70+ months. Bid indications are strong for pools with reasonable speeds and suitable loan counts. This is a good opportunity for investors seeking liquidity.
The October prepayment activity report was released last week. Overall, speeds were in-line with expectations as the changes were mostly related to the increase in the number of days in the month. In aggregate, FNMA ARM speeds were up 1.2CPR to 22.2CPR (5.7% increase). LIBOR-based Fannie 5/1s increased 0.8CPR to 26.6CPR, 7/1s increased 1.0CPR to 18.8CPR, and 10/1s rose 2.3CPR to 16.2CPR. Prepayments for LIBOR-based Freddie securities were more subdued as 5/1s, 7/1s, and 10/1s paid 27.4CPR (0.1CPR), 18.7 CPR (0.6CPR), and 14.0CPR (0.1CPR), respectively.
Metrics for some commonly traded structures are below:
Michael S. Erhardt, CPA
Senior Vice President
Vining Sparks, IBG