CMO Market Update

August 3, 2020

Spread Movement

Spreads to Treasury yields for fixed-rate CMOs tightened 2bps last week and are 9-10bps tighter month-over-month. From a nominal spread perspective, CMOs are remarkably close to where they started the year despite the significant widening seen in the height of the coronavirus pandemic. Please see a condensed version of the Treasury Yield and Spread Snapshot below for additional detail:

Discount Margins on 5-7 year average life floating-rate CMOs tightened two basis points as well, and currently stand around 35bps for bonds with 6.50% caps. Speaking of floating-rate product, the Trade Desk is seeing activity with SOFR-linked paper, in the CMO space and elsewhere like GSEs, ARMs, and CMBS. For a refresher on transitioning from LIBOR, please see our Strategic Insight from earlier this year and Fannie Mae’s LIBOR Transition Playbook.

Recent Investor and Product Trends

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

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