Market Musings

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GSE CRT Float: Memories of Times Past (4/1/25)

Benchmark GSE CRT outstandings currently sit at just over $49B as of March 2025, pretty much around the $49B-$50B float area the sector has seemed to have settled into since Q4 of 2023 as a number of influences, including tenders, GSE acquisition pace, and reinsurance levels have helped keep the volatility in benchmark GSE CRT supply technicals in check. But within the prevailing float, we still see a wide variety of issuance formats outstanding that span the CRT sector’s decade-plus old chronology... (Read more here)

 

 

 

 

 

 

 

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Steady As She Goes (3/3/25)

With the first two months of 2025 now in the rearview mirror, it looks like “steady as she goes” so far for GSE CRT as the sector’s 4 Cs of fixed income relative value trends keep rolling along...Amidst this current backdrop, relative value is mostly differentiated in respective tranche-type carry/convexity profiles... (Read more here)

 

Curve Remains Compressed (2/3/25)

With January in the books, the Treasury curve continues to remain relatively compressed. The term structure is holding within a 71bps band (T-Bills through the 30-year), though a little bit more “normal” versus Q4 of last year. The highest par-curve yield point had been the 4-week T-Bill at 4.76% back in November, but now it’s reverted to the 30-year at 4.83%. Meanwhile, the lowest point is now the 52-week T-Bill at 4.17%, making for a 71 bp range between high and low points on the curve, with all maturities still carrying a 4%-handle yield. The 2-year/10-year spread has now steepened out to 36bps, the widest spread since it “un-inverted” back in August... (Read more here)

 

 

 

 

 

 

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2025 Sector Outlook – Encore Unlikely, But Most Positives Continue (1/2/25)

The 4 Cs of fixed income relative value (credit, convexity, carry, and conditions) for benchmark GSE CRT hovered at near-optimal conditions for most of 2024 to produce a lofty 11.32% total return (according to the CRTx® AGG index), the 2nd highest return in sector history behind 2023’s record 17.69%. For 2025, the market backdrop starts with resilient economic conditions and a persistently tight housing market going into the new year and a new presidential administration. 2025 will likely see moderately lower CRT carry and modest asymmetric risk of wider vs. even-tighter spreads, so the sector may not have the same performance upside of 2024 but should exhibit fair risk/reward in 2025... (Read more here)

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Thankful Thoughts (12/2/24)

With one month to go in 2024, the GSE CRT market is on the verge of turning in a 2nd straight 10%+ return year in a row. As Thanksgiving Day kicks off the holiday season, there are a few thankful thoughts that come to mind for the sector and its well-above average total return year: no recession, a cautious Fed, tender premiums, record tight B1/B2 new issue pricing spreads... (Read more here)

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Coasting Into Year End on a Compressed Curve (11/1/24)

At October month-end, the Treasury curve reached a curious condition. The highest par-curve yield point was the 1-month at 4.76%, while the lowest was the 3-year at 4.12%, making for a 64 bp range between high and low points on the curve, with all maturities carrying a 4%-handle yield. This is the most compressed the Treasury par curve has been since 2020, right before the Fed’s pandemic cuts started, and with the whole curve at 1%-handle yields back then…Heading into year-end, it looks like CRT may be just clipping slightly smaller, but for now still sizable, coupons... (Read more here)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Playing With a Lead to Start the 4th Quarter (10/1/24)

After much anticipation, the Fed has finally done it, cutting Fed funds by 50 bps in September, the first move since their last hike in in July of 2023. With this, CRT 30-day average SOFR floater coupons will begrudgingly, but inevitably, follow as October resets are already -6.9 bps lower and the full 50 bps Fed drop will be consolidated into lower November resets (the lag effect from a 30-day lookback). So CRT’s big play option of 2024, the sector’s relatively large coupons amidst an inverted curve, will face a dovish defensive front from the Fed heading into Q4.  However, benchmark GSE CRT is still playing with a lead over other fixed income sectors with an 8.82% YTD sector return, though the gap is now certainly slimmer on Q3’s strong curve rally buoying rates and IG/HY, which have now returned in the ~4%-8% area YTD. (Read more here)

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