CMO Market Update

January 13, 2020

CMO spreads to Treasurys tightened 1-3 basis points last week. We saw consistent widening in the first half of 2019, with spreads reaching highs for the year in the 3rd or 4th quarter depending on class type and maturity. Levels were steadier to end the year and, overall, bonds are still trading in the same range.

Whereas investors entered 2019 expecting a 3% yield in the CMO space, the environment has undoubtedly changed. Last year’s drop in rates that allowed spreads to widen has also translated to lower yields. As shown in the Monthly Trade Summary (below), bonds purchased by our customers are now projected to earn closer to 2.25%, given the duration profile in which they typically invest.

If you are not familiar with it already, please consider our Investment Alternatives Matrix, a weekly comparison of bond analytics across product types and sectors, including CMOs.

For those that missed it last week, the December Trade Summary is below.

December Trade Summary

Fixed rate CMOs purchased in December are projected to yield 2.17% on average, an 11 basis point increase from November. Treasury yields rose from November to December, accounting for some of the month-over-month change. Additionally, customers extended duration. Fixed-rate buying dominated as usual, but there was some floating-rate investment as well. Please consider the notes and table below:

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
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