CMO Market Update

February 3, 2020

CMO spreads to Treasury yields widened 2 basis points last week for 5 and 10 year bonds, undoing some of the tightening we’ve seen in the first couple weeks of this year. Now, we will review January activity with the monthly trade summary.

January Trade Summary

Customer preferences usually create some stability when it comes to analytics on CMO trades, and that was the case again in January. Typical metrics, such as yield, WAL, duration, and convexity, were right in line with previous months’ results. The low-rate environment has led to lower projected yields purchased since last year, but as discussed in recent CMO updates, nominal spreads are wide when looking back at 12 and 36 month history, making this space attractive for investors. Where we do see variability month-over-month is in class type. PAC-1s saw the majority of activity, accounting for 60% of fixed rate trades.

Below are some notable points from this month’s results:

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

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