| Wednesday, January 8 2025 |
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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 |
| 12/31/24 | 4.30 | 4.32 | 4.27 | 4.15 | 4.24 | 4.28 | 4.39 | 4.49 | 4.58 | 4.86 | 4.79 |
| 01/02/25 | 4.30 | 4.31 | 4.28 | 4.16 | 4.24 | 4.28 | 4.37 | 4.47 | 4.56 | 4.85 | 4.78 |
| 01/03/25 | 4.28 | 4.30 | 4.28 | 4.17 | 4.28 | 4.32 | 4.41 | 4.51 | 4.60 | 4.88 | 4.81 |
| 01/06/25 | 4.31 | 4.29 | 4.27 | 4.16 | 4.27 | 4.32 | 4.43 | 4.53 | 4.63 | 4.91 | 4.85 |
| 01/07/25 | 4.30 | 4.31 | 4.26 | 4.18 | 4.29 | 4.36 | 4.46 | 4.57 | 4.68 | 4.98 | 4.91 |
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 1/07/2025.
Exhibit 1 shows the ARM Characteristics along with the Return and Risk Profile Summary. Note the deep-discounted dollar price of 92-06.
Exhibit 2 shows a yield of 5.32% and spread of 93 basis points using the Bloomberg Agency Prepayment Model (BAM). Since the ARM starts out with a low WAC to the borrower of 2.402%, the BAM model will start prepayment assumptions out slow and then speed them up as the ARM gets closer to it’s first reset in 45 months. Right now, the fully-indexed coupon on this ARM would be 6.66%, so prepayments will certainly speed up on this ARM as the first reset and higher interest costs approach and with a 5% Initial Reset Cap, this ARM can reset up to a fully-indexed rate right away.
One great characteristic about deep discount MBS is that the faster they prepay, the higher the yield. Exhibit 3 shows running the ARM to the first reset in 45 months and then assuming the balance pays off at 100.00. At 20 CPB, (means the bond pays at 20% CPR to the first reset then pay off at PAR), the yield is 5.19% which is already a solid yield and spread but the yield goes up the faster the prepayments. 25 CPB is 5.52%. The bond is already prepaying at 9.9% CPR for the Life.
Historically, discount ARMs are likely to prepay faster as they approach and go through their first reset, but not all of the bond will prepay. What remains will trade close to PAR at that time and could very well even trade at a slight premium.
These ARMs have low interest rate risk. As they get closer to the first reset, the less interest rate risk they have because the coupon is getting ready to reset to more of a market rate. Except for a higher rate scenario where the life cap could come into consideration, the highest interest rate risk these ARMs will have is right now when the months to roll is 45 because after the first reset, they will reset every 6 months thereafter. Exhibit 4 below shows that even now, the current price risk profile of this ARM at +/- 100 is only equivalent to a 3-year treasury note ((2.40% + 3.60%)/2 = 3.00%).
Please reach out to your CCB rep to discuss if this product is a fit for your portfolio.
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