CMO Market Update
December 2, 2019
CMO spreads to Treasury yields were unchanged for the second week in a row. Spreads were steady month-over-month, ending November within a basis point or two from where they started.
November Trade Summary
Analytics on CMO trades exhibited some mean reversion this month. November’s results look similar to what we saw in the first half of 2019. Investors looked to fixed rate coupon bonds as the overall environment suggests rates could stay put or fall even further. The average yield purchased declined, hanging on to 2%. This makes sense as customers invested in shorter-duration bonds.
VADM activity was notable over the two previous months, but disappeared in November. We will monitor this trend going forward and see if rate movements dictate activity in this product type.
Below are some of the notable points from this month’s results:
- Effective Duration declined from 2.3 to 1.8
- Effective Convexity less negative, from -1.9 to -0.9
- WAL in line with previous months at 3.0
- Class Type evenly split between PACs and Sequentials
Travis Nauert, CFA
Analyst, Investment Strategies
Vining Sparks IBG, LP