| Thursday, October 19, 2017 | ||||||||
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MANAGING DIRECTOR: |
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US Treasury Market |
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| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 10/12/17 | .99 | 1.09 | 1.27 | 1.41 | 1.51 | 1.66 | 1.95 | 2.16 | 2.33 | 2.62 | 2.86 |
| 10/13/17 | .97 | 1.09 | 1.26 | 1.39 | 1.51 | 1.64 | 1.91 | 2.12 | 2.28 | 2.58 | 2.81 |
| 10/16/17 | .97 | 1.10 | 1.24 | 1.42 | 1.54 | 1.68 | 1.95 | 2.15 | 2.30 | 2.58 | 2.82 |
| 10/17/17 | .99 | 1.09 | 1.25 | 1.41 | 1.54 | 1.69 | 1.97 | 2.15 | 2.30 | 2.58 | 2.80 |
| 10/18/17 | .99 | 1.09 | 1.24 | 1.42 | 1.59 | 1.70 | 1.99 | 2.19 | 2.34 | 2.62 | 2.85 |
Source: U.S. Department of the Treasury, as of 10/18/17
Moving Up in Coupon on Mortgage Pools
As rates continue to gradually move higher, mortgage investors might prefer pools with higher coupons and higher dollar prices, in an effort to position the portfolio more defensively.
For example: Two pools of 15-year mortgages are shown below. Both pools have the same maturity date, but different coupons; a 3% coupon at 102-27+ and a 2.50% at 100-26. As you can see, investors purchasing the higher coupon mortgage pool can shorten their duration, pick-up yield and spread, with the same risk profile at +300 bps.
With rates on the increase, prepayment speeds are not the concern they once were, so the higher dollar price should not be a factor.
Positioning higher coupon mortgages pools will better position the portfolio for rising rates, with the added benefit of increasing yield.
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
•Not FDIC Insured •No Bank Guarantee •May Lose Value