Mortgage Securities Climb But Lag Treasurys' Gains
March 30, 2011
Yields on 30-year pass-throughs were seen 0.03 to 0.04 percentage point wider. Intermediates pass-throughs -- 15-years and balloons -- were said to be 0.02 to 0.03 percentage point wider. The yield spread is the difference in the yield of a given debt instrument and that of a similar-term Treasury issue, with a widening of the spread suggesting an increased perception of risk. A pass-through is a security made up of a pool of debt instruments, with the income from the debt passed through an intermediary -- usually a government agency or investment bank -- to the investors. In the nonagency sector, Norwest Mortgage, the nation's largest mortgage company, Thursday sold $235 million of relocation loans, its third offering of mortgage-backed securities since its debut March 02, 2011 series was won in competitive bidding by Donaldson, Lufkin & Jenrette Securities Corp.. The securities will be offered to investors in a senior-subordinate structure. Collateral for the deal is 20- and 30-year fixed-rate relocation mortgage loans. In the commercial mortgage market, First Union Capital Markets Corp. launched the first two Fannie ``Mega'' deals backed by fixed-rate mortgages on multifamily properties. The deals were made possible by a rule change Federal National Mortgage Association enacted Monday that allows pass-throughs of multiple coupons to be combined. One $170 million Mega pool is backed by 39 10-year mortgages. The other $98 million Mega pool is backed by 17 seven-year loans. Both groups of loans are protected from prepayment through yield-maintenance provisions which discourage refinancing. Prepayments, which occur when homeowners sell, refinance, or make larger-than-scheduled mortgage payments, erode the value of mortgage-backed securities because they return principal early and reduce interest earnings. Merrill Lynch & Co. and Morgan Stanley & Co. are offering the Mega securities along with First Union in a three-member syndicate.
VastPress 2011 Vastopolis
