MARK FONTANILLA & Co., LLC

October 2019 Month-End CRTx® Index Rebalancing Update

The CRTx® Aggregate Index was up 0.34% in October, bringing the YTD total return to 5.11%. With the Fed cutting another 25bps and the curve bull-steepening for the month, the CRT complex modestly outperformed rates sectors, while incrementally lagging IG/HY. Within the CRT complex, good carry-net-paydowns in 2013-2016 LMEZZ classes compensated for lagging 2019 LMEZZ and SUBs, which saw some widening for the month. Overall CRT excess return volatility was lower in October, in kind with the broader fixed income market. While aggregate CRT volatility remains low (1.82% for the trailing 12 months), SUBs have continued to show higher vol than most bond sectors for the year.

September 2019 Month-End CRTx® Index Rebalancing Update

The CRTx® Aggregate returned 0.65% for September, finishing up 1.07% for Q3. September was a rare 2019 outperformance month for CRT versus the major fixed income sectors as the recent rate sell-off buffeted longer duration fixed rate markets. A rebound in seasoned 2015-2017 LMEZZ deal vintages and rallying in recent-issue SUB paper led CRT complex performance.  The CRT credit curve saw more bull-flattening on solid demand for credit risk, as evidenced by the latest STACR HLTV deal printing at tighter levels. CRT excess return volatility edged up slightly for the month to 1.82%, which is still on the lower end of the fixed income spectrum.

August 2019 Month-End CRTx® Index Rebalancing Update

Amid the highest market volatility so far this year, the CRTx® Aggregate posted a -0.22% decline in August as spreads widened and seasoned paper once again lagged. 2015/2016 LMEZZ deal vintages, and now the 2017 vintage, came under more  pressure last month as paydowns remain elevated. Balancing out the CRT complex, 2018/2019 deals continued to outperform, returning 41bps overall in August, while B-pieces in aggregate came in with a solid 73bps return as SUB spreads held in relatively well. Equities were down for the month, while the major fixed income sector indexes benefited heavily from another 40-50bp rally in the curve, especially the longer duration IG segment which continues to be the leading bond sector for the year. While CRT has understandably lagged into the rate rally, excess return volatility is still better contained relative to other major market sectors.