CMO Market Update

February 22, 2021

CMO spreads to Treasury yields were unchanged week-over-week for fixed- and floating-rate bonds.

The sector continues to see strong demand as investors are putting capital to work and avoiding holding excess cash. Deposits, called bonds, and mortgage product prepayments are serving as a huge source of funds with which to invest.

In case you missed it, our Investment Alternatives Matrix was released on Wednesday last week due to the holiday-shortened week. As you can see, the preponderance of CMO activity is still in low cut-coupons, ranging from 0.5% – 1.5%. This space has been a sweet spot for investors from a risk/reward perspective as they are purchasing projected yields generally ranging from 0.80% – 1.00% (for bonds with about a 3yr WAL) and avoiding huge premium risk in doing so. With that said, higher coupons are starting to look more reasonable on an OAS basis. For tomorrow’s Matrix, we will explore this further and include additional higher coupon examples.

We will process analytics on February trades after this week and include them as they become available.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

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