Market Musings

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The Curve Steeper, Credit Curve Compressed (2026-05-01)

April saw volatility retreat a bit and risk appetite returning as stocks and fixed income spread products rebounded while the Treasury curve bear-steepened to the highest levels of the year (the front end didn’t move much at all). In the midst of April’s shifts, the CRT complex saw a bit of a bull-steepener as A1 spread tightening progressively outpaced the rest of the CRT stack hierarchy. But overall yield levels across the sector remain in a rather compressed range, especially for post-COVID deal vintages... (Read more here)

 

 

 

 

 

 

 

 

 

 

 

 

Sometimes the Best Offense is a Good Defense (2026-04-01)

The heightened risk and surging volatility immersing the markets right now is sending all sectors reeling. Despite the turmoil and a slower economy, Treasuries have sold off on inflation concerns, following stocks lower, and Treasury coupon yields are up 25 to 40+ bps MoM. At the same time, spread products widened significantly, providing a double whammy to broad-market fixed rates, particularly for extending MBS and longer duration IG. In the midst of the fray, GSE CRT’s short <2yr on average spread durations and decently steady floating coupons proved to be more resilient, showing that sometimes the best offense is a good defense... (Read more here)

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Modern Twist on the Capital Stack  (2026-03-02)

Recent-issue GSE CRT tranches have been printing with historically higher original CEs over the past several years, along with shorter optional redemption dates and commensurately higher gradings. If we look at the average CE at issuance across the capital stack, we see that the newer A1-designated class CEs have averaged in the 4%+ area since its inception (though the latest CAS deal comes in on the higher end of the spectrum), while M1s have seen a range between around 2.5% to 3.5%, with lows in 2020/2021. But M2s and lower down the stack show the largest relative new-issue CE increases, as well as the most contraction in average lives to optional redemption in recent years...With this modern twist on CEs, you could say that today’s M2s are the new M1½s, B1s are the new M2s, and B2s are the new B1s... (Read more here)

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In the Midst of Big-Coupon's Twilight  (2026-02-02)

With benchmark GSE CRT outstandings shrinking down to $45B in market value as of January, the sector’s float looks to continue experiencing a generational shift. The newest A1/M1 structural combo currently being issued at the top of the capital stack now represents 18% of the market, certainly a departure from pre-COVID levels where M1s-only accounted for just 11% of outstandings. Meanwhile, M2s account for just 28% (versus 71% pre-COVID), leaving the remaining 44% comprised of B1/B2/B variations (versus 18% pre-COVID). This historically taller and more dispersed capital stack has brought lower coupon margins and shorter average lives into the float over the past two years, while the highest coupon paper in sector history continued to season and remained locked out. But this is changing as CRT’s “big-coupon” era has already entered its twilight... (Read more here)

 

 

 

 

 

 

 

 

 

 

 

 

2026 Sector Outlook – Everything in Moderation  (2026-01-02)

2025 saw a departure from 2024’s near-optimal conditions for GSE CRT, with the CRTx® AGG “only” tallying a 6.90% full-year total return versus the outsized 11.32% performance from 2024. The difference emanated from several, but not all, aspects of the 4 Cs of fixed income relative value for GSE CRT reversing their highly advantageous 2024 course, and these factors may continue heading into 2026. Mortgage credit still looks satisfactory, but light headwinds got windier (ex. unemployment higher, home prices stagnating, etc.), while carry has dipped (and could dip further), convexity upside has become more limited, and supply/demand technicals aren’t necessarily as tight as they used to be. Overall, for 2026, GSE CRT may likely be cruising at a more moderate risk/reward altitude... (Read more here)

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