Yield spreads for new-issue hybrid ARMs to Treasuries were unchanged on the week. Activity in the market was narrowly focused on post reset hybrid ARMs. Investors concentrated on buying seasoned GNMA ARMs with a weighted average loan age of 60 to 100 months and coupons ranging from 2.25% to 2.625%.
There was also demand for GNMA 5/1 2.50’s. These structures fell out of favor earlier in the year as prepayment activity became a concern. However, after spreads widened 10 to 15 basis points, the lower dollar prices (~$101) have attracted buyers.
We continue to see relative value for new-issue hybrid ARMs to fixed-rate MBS. Longer-reset structures (new issue 7/1s and 10/1s) compare favorably to 15-year MBS on an OAS basis.
Metrics for some commonly traded structures are below:
