Sector Update

April 1, 2019



Treasury yields closed out the quarter lower for the fourth straight week. Looking back, the first quarter was fairly smooth through March 1st with the 5yr, for example, trading in about a 20bps range. In fact, on March 1st, Treasury yields were still +/- 7bps from where they began the year. However, markets trade on expectations and if you have a moment to watch today’s Market Watch video (less than 5 minutes), recent data seems to lean towards headwinds for growth. This morning though, the ISM Manufacturing Index and Construction Spending figures were stronger than expected and 5yr and 10yr Treasury yields are up 4 and 3bps on the news, respectively.

 

Q2 2019 Expectations

 

Q1 2019 Spread Commentary



What We’re Reading

Vining Sparks:

Market Today | Weekly Recap | MBS Prepay Commentary (March) | SBA Prepay Commentary (March)

 

Bloomberg: The Bond Market Shuddered. Now We Find Out If That Was Justified

“The yield on benchmark 10-year notes dropped to a 15-month low of 2.34 percent on Thursday amid speculation growth is faltering enough to trigger a Federal Reserve interest-rate cut this year. But there’s been little tangible U.S. data to justify that.”

 

WSJ: Debt Investors at a Crossroads as Fed Pivots

“Now, a sharp drop in Treasury yields has stirred a debate among investors about whether to take heart from the Fed’s pivot to a more growth-friendly posture or be wary of the potentially troubling causes that prompted the central bank’s shift.”



Sector Updates


Adjustable Rate Mortgage Market Update

Yield spreads on hybrid ARMs to Treasuries widened approximately 1 to 2 basis points last week. We continue to see relative value in ARMs as they remain 10 to 20 bps wider compared to levels in early December.

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Agency Market Update

Agency bullets basically moved in line with government debt, while callables continued to widen out.

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Fixed Rate Mortgage Market Update

Yield spreads on current production MBS to Treasuries were mixed last week, with 15-year tightening 2 bps to 43 bps, while 30-year widened 5 bps to 70 bps.

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Municipal Market Update

Municipal prices were stronger on Monday, steady on Tuesday, stronger again on Wednesday, and steady on Thursday and Friday. New issue offerings are forecasted to be $5.5B this week.

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SBA Market Update

Fixed-rate SBICs and DCPC pools remain attractive as they offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.

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CMO Market Update

In the month of March, CMO spreads to Treasurys widened for three consecutive weeks, but were unchanged last week to close out the month and quarter.

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