CMO Market Update

November 30, 2020

Activity in the Agency CMO sector continues to be driven by demand for shorter, lower coupon cuts off traditional and jumbo collateral. Last week, fixed-rate coupons from 1.00% – 1.25% were the most traded in terms of current par. Investors are seeking lower coupons to reduce the dollar price while attempting to create steady, predictable cashflows from the portfolio.

Spreads to Treasury yields were unchanged for the second consecutive week in the fixed and floating-rate spaces. Included below are the high, low, and current spread levels for 3, 5, and 10-year AGY Sequentials and PACs on a YTD basis. As shown in the graph, spreads have traded in a wide range this year and now sit at their lows as we approach the final month of 2020.

On the topic of month and year-end, monthly pricing and analytics have been updated on our Client Access portal (login required). There, portfolio managers can view updated gain/loss estimates with pricing as of 11/23/2020. If you do not have access but would like to register, please click here. While year-end plans are already in motion, please feel free consider some of the thoughts and resources included in our Year-End Balance Sheet Management Strategic Insight.

We will release an updated Investment Alternatives Matrix tomorrow. Included below is the CMO section from last week’s publication.

In next week’s CMO Update, we will focus on the Monthly Trade Summary for November. As we’ve seen in recent months, demand for floating-rate product has been strong, accounting for approximately 30% of CMO trades. It will be interesting to see if this trend intensifies as rates have risen off the lows seen this summer.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

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