Market Musings

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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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GSE CRT Float: The Transformation Continues (2025-12-01)

Benchmark GSE CRT outstandings are now down to just over $47B in market value as of November, declining by about $4B from the beginning of the year. Meanwhile issuance has been tracking at the slowest pace in sector history (currently sitting at $7B YTD), following 2023’s and 2024’s consecutive record annual lows. The introduction of the A1 class in 2023, along with progressively lower B1/B2 issuance along the way, has continued to help transform the sector’s float characteristics towards a relatively lower risk/moderate reward landscape... (Read more here)

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​Fed Cuts Again, Carry lower With 2 Months to Go (2025-11-03)

Benchmark rates continued their current distinctive movements through October as the Fed cut another 25 bps, and the curve “wilted” a little more. 2yr/3yr Treasury yields are still the low points on the curve, ending virtually unchanged MoM, while surrounding shorter and longer maturities dipped 5-25 bps through October. As most rates rallied modestly, vol grinded even lower and credit quality became more in focus with low-HY widening in general. Heading into the last 2 months of 2025, CRT coupons will be incrementally lower, chipping away at carry, but credit, convexity, and conditions, particularly supply/demand technicals, look to continue trending reasonably for the near term. (Read more here)

 

The Curve Wilts as Vol Stays Low and Drag Persists Heading Into Q4 (2025-10-01)

September saw the Treasury curve make another uncommon shift amidst the Fed’s first rate cut since December 2024 and concerns of a slowdown. MoM, 2y through 7y yields actually ended up relatively steady to up several bps, while the rest of the curve effectively wilted lower with short end/Bill yields dropping about 15-25 bps while 10s through 30s fell about 7-20 bps. While most of the curve dipped, vol still remained low and convexity won out over credit with the longest duration sectors faring best as GSE CRT lagged. (Read more here)

 

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