Pass Throughs Pass Treasuries
Analysts in the residential mortgage-backed securitization (RMBS) arena report that 30-year pass throughs (coupons) outperformed Treasuries last week. While this is not an indication of a rally, the higher profitability of RMBS pass throughs may begin to entice more investors into the mortgage investment space. A pass through, a hallmark of securitization structuring, represents how much an investor gets paid after all fees and services are taken. Equally encouraging for the market, trading in asset-backed commercial paper is also on the rise, though there is warning the uptick may be short-lived, as federal regulations on eligible commercial paper now must have the equivalent of a single-A or higher short-term rating from all credit rating agencies. The tightening of the program in which the Federal Reserve lends cash against qualified asset-backed commercial paper through banks to money funds is likely to reduce demand, says Barclays Capital. Research at Bank of America, however, recommends buying 30-year 5% and 4% swaps in RMBS, based on recent pass through activity. Overall mortgage origination volume remains low, however, signalling long-term trouble for the industry. Please see the upcoming June 2009 issue of HousingWire magazine for a full report on origination outlook in the secondary market. Meanwhile, Amherst Securities, a broker-dealer specializing in residential mortgage-backed securities (RMBS), hired a new pass through trader, Michael McSweeney, a veteran with an 11-year history at UBS and Paine Webber. McSweeney will be based in Amherst’s New York City office where he will also expanded the firm's agency collateralized mortgage obligation (CMO) business, helping source collateral for deals. Sean Dobson, CEO of Amherst Securities says: "Mike’s vast experience with and knowledge of specified pool trading will be a tremendous asset to our firm as we continue to add securitization expertise across our platform to help clients successfully take advantage of current trends in the bond market."