CMO Market Update

March 30, 2020

Last week, the Fed included CMBS in its string of purchasing programs, with plans for more intervention in that market this week. As of now, the Fed is not buying Agency CMOs. However, eventually their purchases of 30-year MBS collateral should impact new issuance in the CMO market. Secondary supply will continue to be driven by turnover in investors’ portfolios.

CMO spreads to Treasury yields were mixed last week. Generally, they followed the mortgage market in trending tighter, although certainly not to the extent of MBS where the Fed’s activity is having a significant effect on spreads. With that said, CMO spreads remain wide from a historical perspective, which should provide attractive opportunities for investors. Floating-rate CMO spreads continue to drift wider.

Looking ahead to next week, we will examine the March Trade Summary as an extremely active month comes to a close.

I encourage readers to continue considering our Investment Alternatives Matrix (not only for CMOs, but all sectors), published on the second business day of the week. Even in normal times, yields and spreads are always subject to change, but especially so now as market volatility persists.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

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