ARM Update

October 15, 2018

Yield spreads between hybrid ARMs and Treasuries widened slightly last week, 1 bp or so on average, reflecting lower prices and underperformance.  ARM origination was limited as the focus remained on fixed-rate activity although origination should pick up towards the end of the week.  Given the large rate move this month, it will be interesting to see how the ARM sector trades this cycle.  Extension concerns have pushed fixed-rates wider in October.  However, lower dollar prices, muted net issuance, and a slowdown in short reset ARM speeds in September should serve as a tailwind for ARMs heading into the origination cycle.

Last week, ARM activity was spread across a variety of lists and primarily focused on the following:

Also, Fannie Mega 10/1s with slightly less than 10 years to the reset traded near par.  Dollar prices for conventional hybrid ARMs have been low for an extended period and generally, they have a higher minimum speed threshold, which translates into solid cashflows for the investor.

Ricky Brillard, CPA


Vining Sparks, IBG

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120