| Wednesday, June 14, 2023 |
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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 |
| 06/07/23 | 4.93 | 5.29 | 5.41 | 5.16 | 4.56 | 4.22 | 3.94 | 3.88 | 3.80 | 4.12 | 3.95 |
| 06/08/23 | 5.08 | 5.24 | 5.39 | 5.13 | 4.51 | 4.16 | 3.85 | 3.79 | 3.71 | 4.04 | 3.88 |
| 06/09/23 | 5.09 | 5.25 | 5.37 | 5.20 | 4.60 | 4.24 | 3.91 | 3.84 | 3.74 | 4.05 | 3.88 |
| 06/12/23 | 5.17 | 5.23 | 5.36 | 5.23 | 4.58 | 4.23 | 3.90 | 3.82 | 3.74 | 4.05 | 3.88 |
| 06/13/23 | 5.12 | 5.22 | 5.34 | 5.22 | 4.67 | 4.28 | 3.99 | 3.89 | 3.82 | 4.10 | 3.92 |
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 6/13/2023
Opportunities in MBS Sector
Current-coupon spread action was wider through most of May as volatility rose amid debt limit and inflation concerns. This extended the widening trend that began in early February. Origination supply rose in May as spring housing demand took hold. But it’s still much lighter than usual for this time of year. Nonetheless, with added supply pressure coming from the SVB liquidations, which are hitting the street now, current-coupon spreads reached cycle highs. Meanwhile lower coupons held their own amid increased liquidity focus. On the whole, spread momentum for the broad MBS index was mixed due to the better performance of lower coupons and the higher volatility being more fully accounted for in the index.
Source: Bloomberg
10yr Sector
- Nice pick vs bullets
- We recommend either deep discount dollar price (1.5% coupons) or parish (4.5% coupons) to lock in yields.
- Belly of coupon stack looks overpriced vs upper / lower bounds
15yr Sector
- We believe the best value is in the 15yr 5% space (parish dollar price / over 100bps of spread / limited extension).
- For those looking for rates to fall we like adding 4%-4.5% coupons as a play on faster speeds / higher yields at discounted dollar prices.
- 0% risk weight GNMA pools continue to trade extremely cheap vs FNMA/FHLMC . The most significant price constraint is the still decent supply.
20yr/30yr Sector
- 30yr spreads remain at multi-year wides and provide a great opportunity to gain exposure / relative value farther out the curve.
- GNMA pools at 0% risk weight / lower dollar price / better spread should remain the focus for all accounts.
- Adding loan balance pools to lock in yields make sense to us (we favor 150-200k and selective 85k).
- Avoid 20yr sector (either buy 15yr or 30yr pools instead).
DUS / PC
- Provide nice picks to bullets and limited extension risk.
- DPP continue to trade at wides (though give up upside if rates fall).
ARMs
- Our favorite sector. Significant value across resets.
- FH 841850
- Deep discount $90-12
- 6.09% yield @ 25CPR; 190bps of spread
- 5yr initial reset
- Mega pool (large loan count).
- Favorable prepay history
ARMs Rationale:
Buying deep discount from par. As loans approach reset, speeds tend to pick up (pay faster). As coupon resets, you can get additional upside from pull-to-par effect.
ARMs Exit Strategy:
Look to sell at slight discount (approaching reset) to small premium adding to total return. Normal tail values range $101.00-103.00. FH 841850 YIELD TABLE BELOW.
Buying deep discount from par. As loans approach reset, speeds tend to pick up (pay faster). As coupon resets, you can get additional upside from pull-to-par effect.
ARMs Exit Strategy:
Look to sell at slight discount (approaching reset) to small premium adding to total return. Normal tail values range $101.00-103.00. FH 841850 YIELD TABLE BELOW.
Source: Bloomberg / Subject to change and availability
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.
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