ARM Update

November 27, 2017



Yield spreads for new-issue hybrid ARMs to Treasuries remained stable for the week.  Activity in the ARM sector was resilient despite the holiday-shortened week.  Investors concentrated on adding new issue GN 3/1 2.00s.  These securities are trading at lower dollar prices because of the sell-off on the front-end of the yield curve.  During the past 90 days, yields are up approximately 50 bps for 2- to 3-year Treasuries.  Premium risk has been largely diminished with 3/1s trading close to par.

Traders were also active with odd-lot transactions.  There continues to be demand for odd-lot positions from CMO traders looking for collateral to structure new securities.  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.

 

Metrics for some commonly traded structures are below:


 



 




 

 


Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

Vining Sparks, IBG

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