ARM Update

November 20, 2017



Yield spreads for new-issue hybrid ARMs to Treasuries remained stable for the week.  With the bulk of the origination process almost completed for the month, November issuance should come in slightly lower than October ($2.1bn).  The slope of the Treasury curve, as measured by the spread between the 2-year/10-year, touched 61.6 bps last week, which is the lowest level since 11/1/2007.  The curve flattening is having a material impact on ARM issuance, as 30-year rates and ARM rates have converged.  As depicted on the chart below, the average rate for a 3/1 is approximately 4.14% compared to 3.79% for a 30-year mortgage. This change has caused ARMs as a % of total gross issuance to fall from 4.15% in July to 2.11% in October, while 30-year fixed rates have remained relatively stable.

 

 

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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