CMO Market Update

January 24, 2022

As written in this morning’s Market Today, “Treasury yields climbed early [last] week to reach new cycle-highs across the curve by Wednesday, extending a surge that started on the first trading day of the new year.” From Thursday into this morning, however, bonds are rallying with the 10-year at 1.72% as of this writing.

The CMO desk saw decent activity last week considering market volatility and the proximity to this week’s Fed meeting. Investors purchased almost exclusively 2.00% coupon cuts last week off both 2.50% and 3.00% collateral. One structure that received particularly high demand is a 2.00% coupon off FNCL 2.5, 100% Florida collateral. Below are the Treasury and CMO sections from the Yield and Spread Snapshot found in the overall commentary.

As mentioned above, yields have retreated from new cycle highs reached last Wednesday. Still, 1.75% – 2.00% PACs and Sequentials in the 4-year range have been trending towards 2.00% yields. Last month, the average projected yield purchased by customers was 1.58%. It stands to reason that measure will be closer to 1.75% for January, especially as investors have been moving up the coupon stack in response to rising rates. For more analytical context on this sector, the Treasury and CMO sections from last week’s Investment Alternatives Matrix are below.

January Pricing

Pricing and analytics for customer portfolios will be updated later this week as of today’s market close, January 24, 2021. Since our last pricing date of 12/31/2021, yields are up across the curve, with the 2-, 3-, and 5-year experiencing the biggest changes of 26, 31, and 26 basis points, respectively.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks

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