CMO Market Update
August 20, 2018
VADM (Very Accurately Defined Maturity) spreads remain relatively wide and are a great addition or alternative for investors already considering front/short cashflows with WALs between 3-5 years. VADM investors typically want to mitigate cashflow extension and a VADM structure is designed exactly for this need.
Even with the relative value shift in VADM structures, front sequential tranches, full coupons and also cuts with coupons .5% below the underlying collateral maintained the greatest investor focus.
In terms of finding cash, stronger secondary market bids, especially for shorter CMO structures, should continue to facilitate extension trades and other swaps.
Kevin A. Smith, CFA
Manager, Strategic Analytics
Vining-Sparks IBG LP