CMO Market Update

May 20, 2019

Over the last two weeks, yields for 2-10 year Treasurys have dropped 13-15 bps, but yields for Agency CMOs have held up in the midst of this rally. Spreads for shorter, 2-year paper were unchanged, but 3-, 5-, and 10-year bonds saw another 2-3 basis points widening for the second consecutive week.

As if you haven’t heard enough about the flatness of the Yield Curve: 10-year Sequentials offer a mere 4 basis points in nominal spread pickup over 5-year Sequentials. Having said that, investors will most likely need to extend out on the the curve if they are keen on earning a 3% yield as that can be difficult to find in the 5-year space.

Referencing the Treasury Yield & Spread snapshot in the overall commentary: shorter, 3-, and 5-year term Agency callables and 5-year Munis have certainly seen Year-to-Date and Year-over-Year spread widening. CMOs, however, have seen a more uniform spread widening across the curve for those same time periods, suggesting the sector has improved from a relative-value stand point.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

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