September 25, 2017
Yield spreads for new-issue hybrid ARMs to Treasuries were unchanged for the week, while spreads on fixed-rate MBS continued to tighten. The divergence has caused valuations on ARMs to look more appealing on a relative value basis. This is especially true for new issue longer term hybrid ARMs, which have a substantial pickup in OAS versus 15-year fixed-rate MBS.
Activity in the market was focused on the following:
- Seasoned GN with a weighted average loan life of 80 months or greater
- New issue GN 3/1 2.00’s
- New issue 7/1s. 7/1s offer similar yields as 3.00% 15-year MBS, but with less price risk and substantially better OAS profiles. See the table below comparing the two structures.
Metrics for some commonly traded structures are below:
Michael S. Erhardt, CPA
Senior Vice President
Vining Sparks, IBG