Pass-Throughs Advance On Strength of Treasurys
April 04, 2011
The mortgage sector was still somewhat weak from the selling pressure seen Monday. As the Treasury market moved higher, mortgage-backeds lagged slightly behind Treasury counterparts in both the 15-year and 30-year sectors. Yield spread between mortgages and Treasurys, however, did not widen significantly. Not seen since 2009, new collateralized mortgage obligations backed by balloon mortgages were resurrected this week. The only official report was a small $50 million Freddie Mac CMO backed by five-year 6 1/2s. But traders said an additional $400 million in CMOs using Freddie Mac seven-year 7% pass-throughs were in the making. As word spread across the market, Freddie Mac seven-year 7s skyrocketed to end 7/32 higher. The positive price movements spilled over into surrounding issues, particularly 7 1/2s. According to traders, banks are craving short-term assets. As a result, structured mortgage securities, particularly floaters with stated final maturities, have become more expensive. Some floaters have narrowed to as tight as 14 basis points over Libor, making the CMO arbitrage possible.
VastPress 2011 Vastopolis
