JPMorgan Favors GNMAs Over Conventionals Across Stack

GNMA technicals are expected to be favorable over the near term. In recent research, JPMorgan Securities analysts noted that CMO demand is taking out around 60% of the issuance, while overseas and domestic bank demand has been strong.

They added that money managers should also be a steady buyer as GNMA index weights are now rising. This was partly caused by the increased issuance over the past year as the GSEs dealt with capital issues and tighter underwriting. The rise is also related to the delinquency buyouts, which has caused negative conventional net issuance.