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.
Travis Nauert, CFA
Analyst, Investment Strategies
Vining Sparks IBG, LP