The firm recommends selling 30-year 5.5s and buying a duration-weighted amount of 5.0s. The rally in bonds has quickly pushed 30-year 5.5s to a point where prepayments are expected to rise substantially in the months ahead; this will serve to limit further price upside on 5.5s. 5.0s should also benefit from a flatter yield curve, as investors typically react to curve flattening by buying the lowest available 30-year coupon. In addition, we expect 5.0s to benefit from enhanced liquidity, as issuance and CMO activity in the coupon increase over time, laying the foundation for persistent specials in the TBA roll market.
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Under the capital structure the senior notes will be repaid on a pro rata basis. Otherwise, the notes in the structure will benefit from excess spread and a senior-subordinate structure.
30m ago -
Both pools have exposures to large dealers, so losses could be more pronounced if one dealer goes bankrupt, while both series have revolving periods, when noteholders will not receive any principal.
May 3 -
The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency issued a 30-page guidebook on managing affiliate risks. The report builds on formal guidance issued last year.
May 3 -
In talks with OCC officials, "it became obvious that we would not gain near-term approval given their recent experience with multifamily and CRE positions," FirstSun CEO Neal Arnold says. The companies announced other revisions to their deal, too.
May 3 -
Subordination provides credit enhancement to the notes, as well as deposits in the reserve and redemption accounts.
May 3 -
The capital structure features initial exchangeable notes among the class A, mezzanine and B1 notes. The super senior and senior support tranches will repay noteholders on a pro-rata basis.
May 2