CMO Market Update
January 3, 2022
Activity was light last week, but there was decent traction in the floating-rate space with some trades executed for a Fannie Mae SOFR floater with a current coupon of 0.25%. Fixed-rate activity continues to center around cut coupons ranging from 1.50% – 2.00%, a notable move up the coupon stack from where most customers were trafficking in 2020 and 2021. But this falls in line with the rising yield curve investors have experienced this year.
Monthly Trade Summary
Treasury yields rose in December with bonds maturing in one year and longer increasing at least 10+ basis points in yield. The 2-year yield saw the largest increase of 18 basis points. It is no surprise then that projected yields on customer purchases have been increasing. Once again, the average yield purchased increased month-over-month. Also contributing to higher projected returns, customers extended out beyond 4-years last month, a half year longer than in November.
As is usually the case, fixed-rate bonds accounted for most of the activity during the month. However, as mentioned above, there was decent floating-rate activity to finish out the year, and that coupon type accounted for almost 20% of trades. That percentage is down by nearly half from November, which was an outlier month compared to the rest of the year.
60% of December trades involved sequential structures, flipping the script on the rest of 2021 as PACs had dominated for most of the year.
Travis Nauert, CFA
Analyst, Investment Strategies