The U.S. mortgage credit risk transfer (CRT) securities market has continued to expand in both breadth and depth since the first agency CRT deals were issued in 2013 by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Through their respective flagship CRT programs, Fannie Mae’s Connecticut Avenue Securities® (CAS) and Freddie Mac’s STACR® (Structured Agency Credit Risk), the supply of benchmark CRT securities outstanding has steadily grown each year since the market’s inception, and has now reached over $50 billion in total market value outstanding as of Q1 2019. In addition to their benchmark programs, both GSEs have more recently issued peripheral variations of CRT securities, including deals backed by seasoned loans and mortgage insurance/re-insurance transactions.
As the CRT market has grown, so has the variation in deal reference pool characteristics, security-level terms, and seasoning within the CRT complex. This presents a range of distinctive risk/reward relative value propositions that are available to investors in the CRT space. In 2018, based on the CRTx® index, the U.S. agency CRT market posted a 2.79% total return, outperforming most other major market sectors in a year that was marked by extreme year-end volatility across all financial markets. This relative out-performance in 2018 had been buoyed in large part by the unique credit and convexity features of agency CRT securities.
With the expansion in depth and breadth across the CRT complex in mind, we have created the CRTx® Index Reference as a guide for market participants to help track, analyze, and navigate the different risk/return experiences from the CRTx® Aggregate index, as well as from a comprehensive set of sub-indexes within the Aggregate. These sub-indexes are comprised of different security baskets that cover various structural position, reference pool type, and deal vintage blends. In indexed form, each index/sub-index shown in the CRTx® Index Desk Reference can not only be compared on a normalized basis to all other index/sub-indexes within the CRTx® index suite, but to other market sector indexes as well.
We hope that the CRTx® Index Desk Reference will provide you with added intelligence, insights, and strategies for the U.S. agency CRT market and beyond.