CMO Market Update

April 26, 2021

For the time being, Treasury yields are resting below recent highs (10-year yield 1.57% as of this writing), and nominal CMO spreads remain just above recent lows. As discussed in the March and April trade summaries, projected yields on customer purchases have increased as investors are extending out on the curve, averaging greater than 1.00% in recent months for bonds with a 4-5 year weighted average life.

Customers are interested in this part of the curve because they can find low coupon cuts (1.00% – 1.50%) without taking on significant premium risk. Last week saw a notable amount of activity in 1.00% coupons off G2SF 3.0 collateral, with a number of bonds trading at a slight discount. Some investors are still adding “prepay friction” collateral to the portfolio, but not at the same rate as last year.

For more context on this sector, please see the Treasury and CMO sections from last week’s Investment Alternatives Matrix below.

Next week, we will review activity in April with the monthly trade summary.

Monthly pricing and analytics will be updated tomorrow 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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