CMO Market Update

May 3, 2021

Monthly Trade Summary

Analytics on April CMO trades exhibited some mean reversion in terms of WAL and Effective Duration after investors extended out notably in March. Customer purchases of fixed-rate CMOs in March projected to have a base case WAL of about 5 years. In April, new investments averaged a 3.8-year WAL, which is more in line with historical averages for our depository institution customers. Similarly, effective duration fell to 3.4. But yields were steady month-over-month, with projected yields on April purchases averaging 1.20%.

In terms of product trends, investors continue to seek out discount priced, low-coupon cuts, and it was the the 1.00% – 1.25% part of the stack that was in high demand during April. There was an increased appetite for traditional and jumbo Ginnie Mae collateral, and for G2SF 3 collateral in particular. Most trades with FNR or FHR issued bonds were 1.0% coupons off FNCI 1.5% collateral.

Activity in floating-rate CMOs has fallen off almost completely in the last two months after a decent run to start the year. Fixed-rate bonds accounted for the overwhelming majority of Agency CMO trades last month. When looking at trades by class type, PACs accounted for more than 50% of trades for the third month in a row. And a meaningful amount of TAC structures traded, accounting for most of the increase in the “Other” category by Class Type.

For more context on this sector, please see the CMO section from last week’s Investment Alternatives Matrix (as of 4/27/2021).

As a reminder, monthly pricing and analytics have been updated on our Client Access portal for April month-end. If you do not have login credentials, please click here to register.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

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.
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