CMO Market Update

June 21, 2021

The conclusion of the FOMC’s rate decision meeting last week gave way to more volatility in the Treasury market. The 2-, 3-, and 5-year yields increased 11, 16, and 14 basis points, respectively. These maturities match the WALs for CMOs in which our customers typically traffic. Consequently, nominal spreads tightened for the second consecutive week. For the maturities and strucutures we monitor, spreads have tightened 4 basis points in June, but are essentially flat on a year-to-date basis.

In terms of activity, while the trade desk continues to field a healthy amount of inquiries for 1.0% coupons off G2SF 3.0% collateral, a handful of trades were executed last week involving 1.0% coupons off FNCT 3.0% collateral. Given that falling interest rates remains the biggest risk to most of our customers’ portfolios and balance sheets, low coupons and prepay friction collateral are likely to remain in favor as investors look to maintain steady, consistent cashflow while also supporting earnings.

As we approach the end of the second quarter, portfolio managers will be positioning for the second half of 2021. In the coming days, we will update pricing on our client access portal, giving investors an opportunity to view updated analytics and gain/loss projections. If you do not have access but would like to register, please click here.

For more context on yields, spreads, and analytics, please see the condensed Yield and Spread Snapshot below (Treasurys and CMOs). Additionally, readers can click the following link to view last week’s Investment Alternatives Matrix.

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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