MARK FONTANILLA & Co., LLC

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.

July 2019 Month-End CRTx® Index Rebalancing Update

The CRTx® Aggregate posted a 0.64% return in July as B-pieces and 2018/2019 deal vintages continued to drive overall sector performance. Versus major fixed income indexes, the CRTx® Aggregate outperformed rates and HY, while largely in line with IG for the month. YTD, benchmark GSE CRT still lags other spread segments, but volatility remains relatively lower. The CRT credit curve has continued to rally since January, with 2018/2019 LMEZZ spreads ~25-35bps tighter and SUB stack prices moving several points higher, while seasoned LMEZZ issues still underperform. CRTx® Aggregate monthly excess returns came in at +44 bps, while volatility was marginally higher at an annualized 2%.

June 2019 Month-End CRTx® Index Rebalancing Update

The CRTx® Aggregate eked out a 0.27% return in June as seasoned high premiums continued to weigh on the CRT complex, offsetting newer issue returns. For Q2, the CRTx® was up 1.08% and 3.64% YTD, underperforming spread and rates sectors as equities and the curve continued to net rally for the year. Credit remains favored over convexity across the CRT complex with recent issue 2018/19 deal vintages and SUB spreads firming, while older issues moved wider. CRTx® Aggregate excess returns for June were marginally positive at +9 bps, while daily volatility picked up throughout Q2.