CMO Market Update
February 24, 2020
Spreads widened 2 basis points last week for 3, 5, and 10-year PACs and Sequentials. Year-to-date, CMO spreads are marginally tighter, but still look attractive when compared to 1 and 3-year history.
1 & 3 year Spread History for 3 year PACs
1 & 3 year Spread History for 3 year Sequentials
The trade desk has seen good activity with Modified Step collateral. These CMOs can have a similar profile to MBS backed by FNMA re-performing loans, that is loans that are current but had been delinquent in the past. Depository investors with exporsure to falling rates have favored this collateral as it projects to have a comparable yield to 20 year MBS, but a more favorable projected WAL in a -100 bps scenario with less contraction risk.
Travis Nauert, CFA
Analyst, Investment Strategies
Vining Sparks IBG, LP