Value Despite High Payups
The sharp rally in Treasuries has had a noticeable effect on MBS valuations, both at the overall sectorlevel and on an intra-sector basis. One of these results has been much higher payups on specified pools. But the rally is hardly the only reason for that result. In this missive, we demonstrate the changing nature of the market and provide guideposts to seek value in the market.
CMO spreads are 2-5bps wider since May. Hybrid spreads are 1-14bps wider while CMO Floater DMs 0-5bps tighter. The payups for loan balance specified pools 3.0s-5.0s increased 2-3 ticks since the end of last month. Driving primary fixed mortgage rates are currently at 12-month lows. Fixed prepayment speeds increased in May by 17.5% due to consistently lower primary rates during the refi window and higher turnover despite one less business day month over month.