CMO Market Update

February 28, 2022

The holiday shortened week, combined with geopolitical uncertainty surrounding Russia’s invasion of Ukraine, led to lighter activity in the CMO space last week. However, it has been a busy month overall in this sector, as investors continue showing demand for 2.0% coupon cuts and higher.

The structure that saw the highest demand last week was a 2.25% PAC off G2SF 3.5% collateral. Some portfolio managers have moved quickly up the coupon stack, with a few 3.0% coupon trades executed last week as well.

Last week’s events and this morning’s open has Treasury yields lower with bonds rallying. The front end of the curve, which has seen the steepest increase in 2022, is rallying the hardest with the 2- and 3-year yield each 10 bps lower compared to when we released last week’s Investment Alternatives Matrix. The Treasury and CMO sections are shown below for reference.

Next week, we will review February activity with the monthly trade summary. The analytics have been trending towards an average projected yield of 2.0% on new purchases. February activity will most likely breach that threshold.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks

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