Hello, my name is
Terri Spath,
I am the Chief
Investment Officer.
Thank you for joining us for
this week's Market Minute
where I want to discuss a very
unique part of the bond market.
As you know, we are
trend followers.
We're looking for trends up,
where we can participate,
or pivots to trends down,
so that we make sure that
we get out of the way.
It's a rules-based
trend trend following
philosophy and strategy.
So broadly speaking, it's
been a very trendless
market for many asset
classes since February.
You can say a lot
about U.S. stocks,
about global bonds; a number of
markets have been very choppy.
Very volatile.
Moving up a lot,
moving down a lot.
But not really trending in
one direction or another.
However, there is a unique
part of the bond market called
non-agency residential
mortgage backed
securities or
non-agency RMBS that
has been trending
up nicely.
And there's
three key reasons for that.
And I will tell you
what those three are.
Number one, this is a market
that is actually shrinking.
They're not issuing this
type of bond anymore.
So it's gone from a
$1 trillion market
to $700 billion
market.
Still large,
but the supply is going down
while demand remains the same.
That's helping the prices.
Secondly, over 90%
of these bonds are
floating rate, which means
if interest rates are moving,
they can say they're going
to adjust those interest
rates along with the changing
interest rate environment.
So that's another benefit
of non-agency RMBS.
And finally, you might be asking
yourself what about the credit
quality of these things?
Weren't they a problem in 2008?
Well, the truth is is
that many of these bonds
originated in the 80's and 90's
paid through that period of time,
the financial crisis.
The ones issued 
more recently
in the 2000's same thing.
So we're seeing a
good credit quality,
floating rate interest rate,
and a supply that's shrinking.
And so in sum, this unique part
of the bond market, non-agency
RMBS has been trending up.
So we've been
participating in that.
Thanks again for
joining us this week.
And we'll see you next time.
