RMBS Market Commentary
Agency MBS
Agency MBS pass-throughs continued to perform well in July versus both Treasuries and swaps. Lower coupon Fannie 30-year TBA’s, namely 4.0’s, 4.5’s and 5.0’s rose by 0.50 – 1.25 pts. Higher coupon TBA’s were largely flat from their end of June close. New supply in the market continued to remain light and market demand for paper remained strong, aiding technicals. IOS.FN30 prices continued to come under pressure over the course of July, as mortgage rates continued to rally. IOS.FN30 prices dropped by 0.5 – 2 pts across the board.
Mid-June saw the introduction of the PO.FN30 index for the same six coupons as the already issued IOS.FN sub-indices. While trading activity for the PO index was said to be light by market participants, prices since the launch of the index have risen by about 1.75 – 5 pts across the various coupons/cohorts. Over the course of July, prices for PO.FN30 rose by 0.5 – 3 pts over the course of July, driven by a drop in mortgage rates.
IOS activity remained robust with notional outstanding as of July 23rd (based on the DTCC warehouse data) exceeding $28.7 billion for the six coupon/cohorts issued. The largest outstanding in terms of notional amount for the IOS.FN.650.09 was over $7 billion. Total outstanding notional for the PO.FN30 indices has totalled over $1.4 billion as of the July 23rd reporting date.
Non-Agency RMBS
Prices for the various PrimeX indices rallied by anywhere from 0.25 – 1.75 pts in July. Fixed-rate and ARM Series 1 sub-indices representing collateral from 2005 and the first half of 2006 saw price increases between 0.25 – 0.50 pts, while the more recent vintage (2H 2006 and 2007) Series 2 fixed-rate and ARM sub-indices rallied by 1.50 – 1.75 pts. Non-agency cash bond prices also rose in July, by 1 – 2 pts for fixed-rate and hybrid-ARMs across the jumbo, Alt-A, and Option-ARM sectors. In general, credit markets continued to stabilize over the course of the month. This follows May’s sell-off related to concerns about European markets, which....