CMO Market Update

October 25, 2021

Treasury yields rose again last week, and once more it was the intermediate portion of the curve that saw the biggest changes. Yields for 2-10 year government bonds increased 6-7 basis points, the largest change week-over-week for any part of the yield curve. Consequently, the trade desk observed some nominal spread tightening of about 2 basis points for fixed-rate CMOs. For more context on yields and spreads, please see the Treasury and CMO sections below from the overall commentary snapshot.

In terms of activity last week, CMO investors were most active with 1.50% coupon cuts. Trades involved both traditional and jumbo collateral with coupons ranging from 2.50% – 3.00%. When it comes to structure, customers are still favoring PACs over Sequentials as has been discussed in recent monthly trade summaries. Additionally, the trade desk observed some decent two-way flow as judged by recent standards. Overall, however, trades are still predominately one-way with customers buying bonds outright from cash.

Next week, we will review October activity. Customer buying preferences and analytics on purchaces have been and remain fairly steady in recent months. It will be interesting to see if and how much average purchased yields have increased.

And lastly, in case you missed it last week, please click here to view last week’s Investment Alternatives Matrix. The Treasury and CMO sections are shown below.

October pricing and analytics will be updated on our Client Access portal this week. For those without login credentials, please feel free to request access by clicking here.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP