CMO Market Update

November 23, 2020

Spreads to Treasury yields were unchanged for fixed and floating-rate CMOs last week. Depending on maturity and structure for the product types we monitor, spreads are tighter by 2-4 bps over the last month and 7-17 bps YTD.

Below are the Treasury and CMO sections from the Yield and Spread Snapshot found in the overall commentary.

Activity in the CMO space last week was driven again by low coupon cuts (1.00% – 1.25%) off traditional and jumbo collateral. Going down in coupon should help premium averse investors find a lower dollar price.

As we’ve seen over the last couple months, demand for floating-rate product has been strong and that remains the case. As we approach another month-end it will be interesting to see what the ratio of trades by coupon type is for November. In recent months, floating-rate bonds have accounted for 30% of CMO trades. We will examine this when the monthly trade summary for December is released early next month.

Monthly pricing and analytics will be updated on our Client Access portal (login required) later this week with pricing as of today (11/23/20). Portfolio managers can view updated gain/loss estimates with year-end just over a month away. If you do not have access but would like to register, please click here.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

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