SVB MBS Sales May Explain Recent Widening in Lower Coupons: WFS

Given the recent MBS sales by Silicon Valley Bank (SVB), the recent widening in lower coupons of the past week can be put into context, writes Mario Ichaso,Wells Fargo senior RMBS strategist, in a research note.

• Prior to this week, lower coupons remained “extraordinarily sticky” on a spread basis, which can be attributed to supply and demand factors at play
• On supply side, about 40% of outstanding UPB in 2.0s-2.5s are presently held at the Fed while another substantial amount is locked away in US banks HTM (Held-To-Maturity) portfolios
  • On demand side, money managers have been covering their MBS ...