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Wednesday, September 6, 2023
 

MANAGING DIRECTOR:
Scott Carrithers
 
PORTFOLIO SALES AND SERVICE:
George Morris • Chris Thompson • Sean Doherty • Kevin Doyle • Mark Tranckino
Natalie Regan • Aaron Stoffer • David Farris • Lonnie Harris • Brian Schaff • Jeff Macy
Josh Kiefer • Robert Schuyler • Tom Toburen •  Todd Czinege

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
08/29/23 5.38 5.45 5.54 5.39 4.90 4.58 4.28 4.23 4.12 4.42 4.23
08/30/23 5.39 5.47 5.54 5.40 4.89 4.57 4.27 4.22 4.12 4.42 4.23
08/31/23 5.38 5.45 5.51 5.39 4.87 4.56 4.26 4.21 4.11 4.41 4.21
09/01/23 5.38 5.42 5.49 5.37 4.88 4.58 4.30 4.26 4.18 4.48 4.30
09/05/23 5.38 5.43 5.52 5.42 4.96 4.67 4.38 4.35 4.26 4.56 4.37

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 09/05/2023


 
7% Coupon MBS
 
The Fed’s comments to remain “data-dependent”, yet fully prepared to raise rates until we are on a clear path towards their inflation target, leaves investors with a bit of uncertainty. The 10yr UST is just off its mid-August high of 4.35%, now at 4.27%. The market expects the Fed to pause in September, however, the FedWatch tool at the CME now indicates a 50/50 chance of a hike at either the October or November meetings. Are we headed higher for longer?  This uncertainty, combined with the absence of Fed purchases and tepid bank demand, has pushed spreads in securitized product near their widest levels in years. Specifically, we see the best value in Agency MBS and CMBS.  

If you are looking for outright yield, 30yr MBS offer substantial opportunity. Fannie Mae 30yr current -coupon spreads of ~180bps. GNMA pools are trading historically cheap to FNMA/FHR. For those looking for shorter durations (~3-4yr), 15yr MBS pools, ARMs and Agency CMBS are the best value. If you take a barbell approach, staying short SOFR ARMs are great for current income/yield, even if rates go higher.  

 As our regression model tells us we are near cycle highs in rates, meaning the Fed could be getting closer to ending the tightening cycle, the timing to put spread and yield on the books (with potential upside) could not be better!

GNMA 7% MBS Pool. Monthly cashflow. Amortize premium ~7/32s per month; Jan ’25 you own 7% at par!

                                                                                                                                                                                                                  Source:  Bloomberg 09/06/23


SOFR ARM. Great cash surrogate. 5yr legal final; Nov. 2028. Discount w/nice upside. Minimal mark-to market. 

                                                                                                                                                                                                                 Source:  Bloomberg 09/06/23

100 CPP – prepays at par 3 months prior to final maturity
0 CPP -goes to final maturity date
V4 – prepays at par in 1yr
V5 – prepays at par in 2yrs
V6 – prepays at par in 3yrs



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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