Continuing bank portfolio liquidations seem to be causing what some MBS analysts are calling a "barbelling" effect in the issuance and selling of Freddie Mac securities, with the selling of bonds that have weighted average maturities (WAM) that are either very old or very new - but very few that have intermediate maturities.
This has especially been true for premium mortgage-backed securities, sources say. For instance, last week the average WAM for 8.5% Freddie bonds was approximately 349 months, and only 6% of the total has WAMs below 300. But nearly 90% of the securities - most of which were issued by ABN Amro - were 352 months or above, so the average was approximately 348 or 349.
"You see a big barbelling of it here, and you have to be cognizant of that when you're bidding new-production 8.5's," said an MBS expert. "You also see that in 9% bonds as well.
"As portfolio liquidations continue, they dig deeper into the older stuff."
Especially in premiums, sources indicate that when banks are through selling securities that are two years old - 1998 production bonds or other bonds inside of 300 WAM - they then tap much older paper, usually from pre-1995 production.
A similar trend has been seen in discounts, though to a lesser extent. There were approximately 263 million issues of 6% MBS last month, and approximately 11% of that had WAMs of 300 and under, a source noted. Sixteen percent had WAMs between 300 and 324 monts, which is considered old paper.
"Obviously, the banks have gone through their one- and two-year old 98-production stuff in 6s, and now they are going to their '93 and 94-production 6s," the source said.