CMO Market Update

July 16, 2018

The CMO sector saw strong demand from depositories last week. Much of the activity was follow through from portfolio managers who lined up and evaluated trades the prior holiday-shortened week. Typical as of late, activity was dominated by outright cash purchases. Some investors considered trading out of cut-coupon CMOs and reinvesting in what continues to be the favored structure: well-structured front sequential tranches with 4.0 and 4.5 coupons with a WAL of 3.0 to 4.0 in the base case extending to 6.0 to 6.5 years rates +300. Also, as was mentioned the past couple weeks, new and renewed interest in VADM (Very Accurately Defined Maturity) CMOs continues, as they should help protect investors sensitive to cashflow extension should mortgage prepays slow down.

Today is the structure final for FNMA and FHLMC. Issuance is expected to be light this month.



Kevin A. Smith, CFA

Manager, Strategic Analytics

Vining-Sparks IBG LP

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