| Wednesday, March 20, 2024 |
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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 |
| 03/13/24 | 5.37 | 5.40 | 5.32 | 5.03 | 4.63 | 4.38 | 4.19 | 4.20 | 4.19 | 4.44 | 4.34 |
| 03/14/24 | 5.37 | 5.40 | 5.33 | 5.06 | 4.68 | 4.46 | 4.29 | 4.30 | 4.29 | 4.55 | 4.44 |
| 03/15/24 | 5.37 | 5.40 | 5.33 | 5.07 | 4.73 | 4.51 | 4.33 | 4.33 | 4.30 | 4.55 | 4.43 |
| 03/18/24 | 5.40 | 5.40 | 5.34 | 5.08 | 4.73 | 4.52 | 4.34 | 4.35 | 4.33 | 4.56 | 4.45 |
| 03/19/24 | 5.39 | 5.39 | 5.34 | 5.09 | 4.67 | 4.47 | 4.30 | 4.31 | 4.30 | 4.55 | 4.44 |
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 3/19/2024.
When and How Far?
If all the recent Fed and economic speak has you confused as to when the first rate cut will take place and how far those cuts will take us, then the following GNMA ARM may well be worth your consideration in all this confusion.
The yield table analysis above shows the yield to the first reset date at various CPB speed assumptions and assumes a balloon payment at reset.
Key Features include:
- 5.00% initial coupon rate with 10% lifetime CAP
- Resets in 5 years (57 months) at the 1 year treasury rate + 150 basis points
- Resets annually after first reset
- Has a 1/1/5 CAP structure (1% first reset CAP / 1% annual collar / 5% lifetime CAP)
- Par(ish) price means no big yield uncertainty due to prepayments
- 5% plus base case yields to the approximate 3 year average life to the first reset
- Falls into the 1 year bucket from an A/L standpoint after the first reset
- Full faith and credit GNMA backing
- 0% risk based capital provision
Yet as attractive as these key features are, many believe the best of an ARM reveals itself after the first reset. For example, fast forward 57 months. If the treasury rate remains unchanged from today, the coupon would adjust to 6.00% (5.04% treasury + 1.50% margin = 6.54%... 6.00% due to 1% annual collar). In a world where the treasury rate declines by 1.50%, the coupon would remain at 5.00% (3.54% + 1.50% = 5.04%). And lastly, if rates were to revisit all-time lows and drop 400 basis points, the coupon would only adjust 1% lower to 4% due to the annual collar.
Overall, this pool should significantly outperform if rates go lower while providing a nice hedge if rates continue to drift higher.
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