As the world of non-agency mortgage-backed securities diminishes from runoff, their prices are rising. The biggest returns are on issuances backed by variable-rate loans with little documentation.
In April, the price of senior securities on non-agency MBS was $68.74. In August, the price had climbed to $72.43, yielding a 5.4 percent gain. Annualized, the increase works out to around 8.1 percent.
Returns were strongest on MBS backed by Alt-A adjustable-rate mortgages.
According to Amherst Mortgage Insight, the price of Alt-A ARM MBS ascended 8.2 percent from April to $66.70 in August.
Another strong performer was the option-ARM category, which was up 8.1 percent.
The four-month return on prime fixed-rate private-label securities was lowest at 3.6 percent.
“The question we are often asked is ‘Can prices rise more?,'” the newsletter said.
A robust technical environment with strengthening fundamentals and “healthy” cash-on-cash returns were highlighted.
“Thus, even if price upside is more limited from current levels (which we expect will be the case), the downside is also quite limited,” Amherst said.
Amherst Securities Group LP, which claims to be “a leading broker/dealer specializing” in MBS trading, reported that the non-agency mortgage market has fallen to $0.986 trillion from $1.878 trillion as of Dec. 31, 2008.
Runoff since the end of last year already exceeds $100 billion.
