ARM Update

October 16, 2017

Yield spreads for new-issue hybrid ARMs to Treasuries were 1- to 2 basis points tighter for the week. The spread between the 2-year and 10-year Treasury declined 7 basis points last week and is currently at 78 basis points, after peaking at 136 basis points in December 2016 following the election.  The flattening yield curve will likely continue to slow demand for ARMs.  The graph below depicts the narrowing difference between rates on hybrid ARMs and traditional 30-year mortgages.

Strong demand for ARMs continues because of wider valuations versus other mortgage products. 15-year MBS remain at the tights of the year, while ARMs are approximately 10-12 basis points wider than earlier in the year.

Last week investors focused on seasoned pools with a weighted average loan age of 80 to 100 months.  Post-reset speeds have recently stabilized, which has attracted buyers to the seasoned sector.  Other activity included the following:

Metrics for some commonly traded structures are below:

Michael S. Erhardt, CPA

Senior Vice President

Investment Strategist

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