Click Here to Print
Friday, July 25, 2025
 

MANAGING DIRECTOR:
Scott Carrithers
 
PORTFOLIO SALES AND SERVICE:
Chris Thompson • Sean Doherty • Mark Tranckino • Brian Schaff
Natalie Regan • Aaron Stoffer • David Farris • Jeff Macy 
Josh Kiefer • Todd Czinege • Trey Valentine • Cody Kreutziger

US Treasury Market
Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
07/18/25 4.29 4.34 4.26 4.07 3.87 3.84 3.95 4.17 4.42 4.98 4.99
07/21/25 4.30 4.33 4.27 4.07 3.86 3.82 3.92 4.13 4.38 4.94 4.95
07/22/25 4.29 4.32 4.23 4.06 3.83 3.78 3.87 4.10 4.35 4.90 4.92
07/23/25 4.28 4.35 4.28 4.08 3.88 3.83 3.93 4.14 4.38 4.92 4.94
07/24/25 4.28 4.35 4.27 4.10 3.92 2.87 3.96 4.16 4.40 4.93 4.94

The data in the table above is static as of the time it was pulled, so rates may have changed. Treat all data in this table and PMR as indications only and availability is always subject to change. This information was pulled manually from sources we believe to be reliable. New source, as of 12/12/2022, Bloomberg, L.L.P.  As of: close of business 7/24/2025.
                                                                                                                                                                                      


Collateral Mortgage Obligation “CMO” or Count Me Out “CMO”
 

We periodically review client MBS purchases (spec pools, hybrid arms, and CMOs) throughout the year to spot possible problem bonds (or sometimes winners that have run too far).  One common theme we typically see is clients reaching for “spread” or “yield” to the base case as CMOs are a “better” value.   When considering purchasing a CMO we strongly suggest accounts look at a range of outcomes and make sure you are getting properly compensated for the increased structure and liquidity risks.  
  1. Minimum Spread – We believe each customer should maintain an applicable minimum incremental spread over specified pools to justify a CMO purchase. We generally recommend at least 15-25bps of incremental spread vs comparable coupon specified pools (assuming plain vanilla 15yr or 20yr collateral) to compensate for decreased liquidity / modeling risk (derivative of pools makes forecasting prepayment speeds harder) / structure risk.  Whatever your minimum spread is, we recommend you not stretch for yield or violate this standard. Purchase a pool instead if you can’t get enough spread. 
     
  2. Relative Value Analysis – We recommend investors compare a CMO to similar specified pool.  We would encourage looking at the closest three specified pool coupons, for the example below, we would compare the 4% coupon CMO to a 3.5% / 4.0% / 4.5% coupon pool with a similar base case WAL. This will help you gauge potential risks and rewards. 
     
  3. Block Size – We believe investors should consider purchasing larger par amounts vs specified pools.  CMOs have a much smaller audience that typically skews in favor of larger current face sizes.  Examples of this could be 1mm+ current face for fixed coupons or 5mm+ current face for floaters.  If you are a 1mm pool buyer, we would recommend 2-3x your typical purchase size.  The lack of a TBA market in CMOs decreases liquidity vs a specified pool (that is why we think you should demand a higher spread) and drives wider bid/ask spreads especially as the current face becomes smaller.  
     
  4. Extension / Contraction Risk – Pay close attention to the shock scenarios.  We have seen numerous times where investors focus on the base case (which typically never happens), while negating to look at the possible range of outcomes.  Looking at the range of outcomes (compare this to similar WAL specified pool as well for relative value analysis) will help to identify undue risks you may be bearing.  Run a shock analysis to understand if you can absorb the changes in WAL and total returns.  
From 2019-2022 we saw little value in CMOs, however in 2023 to 2024 CMOs widen enough for a select few structures.  As rates continue to fall and liquidity increases, we would expect CMO spreads to continue to tighten and likely will not find much if any value in CMO structures.  As we will always advocate look at the relative value analysis and compare to pools.  We find that most of the time CMO does not stand for “Collateralized Mortgage Obligation”, but really should stand for “Count Me Out”.   
 



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