CMO Market Update

March 29, 2021

CMO spreads to Treasury yields widened 2 basis points for the second consecutive week. While this is welcomed news to investors from a price/yield perspective, spreads are up just 3-6 bps YTD depending on structure and maturity, and still well below the levels seen throughout 2020.

From a nominal yield perspective, however, CMOs look attractive relative to recent months. With rates rising meaningfully in Q1, prices have dropped and prepayment projections have adjusted lower. It was noted in the February trade summary that the average projected yield on CMOs purchased last month by customers was greater than 1.00% for the first time in a year. Investors are finding that a 1.00% yield or greater is attainable in this sector without having to take on too much premium or extension risk.

CMO investors continue to focus on fixed-rate cut-coupons, generally ranging from 1.00% – 2.00%, but most of the activity is happening from 1.00% – 1.50%. For floating-rate bonds, customers are still active when supply is available. A few trades were executed last week with SOFR indexed bonds.

For more market measures, please see the Treasury and CMO sections of last week’s Investment Alternatives Matrix below.

Monthly pricing and analytics have been updated on our Client Access portal as of 3/24/2021. If you do not have login credentials, please click here to register.

Next week, we will examine the monthly trade summary for March.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

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