Sector Update

April 17, 2017

Weekly Sector Updates


Bond yields tumbled in all sectors and for most maturities last week. Treasuries of all maturities three years or greater finished the week lower than where they started by at least 12bp. The ten-year Treasury finished at the lowest yield for that maturity since November 16th. The week prior to last week featured several important news stories bullish for bonds. These included the US attack on Syria and FOMC minutes. Last week added to this list more bon-bullish factors, including heightened concerns about North Korea and inflation data further below the Fed’s target levels than expected.

Activity in most bond market sectors early last week exceeded the anemic levels seen the prior few weeks. The jump in bond prices allowed some portfolio managers to execute portfolio adjustments with less negative or more positive earnings impacts, augmenting the continued replacement of portfolio redemptions. Some portfolio managers also seemed to tire of the move away from the “wait and see” attitude, which had prevailed almost since the election, as timelines for expected changes seem to be materializing at a pace slower than many expected. With the early close on Thursday and trading holiday on Friday the pickup in activity was short lived.

Generally consistent yield declines occurred across all sectors last week, with minor changes in yield spreads. The notable changes included 3bp to 5bp widening in tax-free municipal yield spreads versus Treasuries and some tightening of spreads between callable agencies and Treasuries that varied depending on term and structure, with the greatest tightening occurring in longer maturities and shorter call date structures.

The 1.77% yield at which five-year Treasuries finished trading last Thursday is 16bp below the year-to-date daily closing average. It is also 27bp above the average for the last year of trading. At 2.24%, the yield for the ten-year Treasury is 19bp below the year-to-date average and 25bp above the average daily close for the last year.

Adjustable Rate Mortgage Market Update

Yield spreads for new-issue hybrid ARMs to Treasuries widened by 3 to 4 bps on the week. However, this was based on a holiday-shortened week with relatively light volumes of trading in any ARM issues, including new issues. There should be more of the April supply coming into the market this week.

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Agency Market Update

A flight to quality sent Agency yields lower across the curve, with the most movement occurring in longer-term maturities (5+ years). Two-year Agency yields decreased by 9 bps to 1.30%, 5-year Agency yields fell 16 bps to 1.88%, and yields on 10-year Agencies were lower by 15 bps to 2.63%.

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Fixed Rate Mortgage Market Update

For Monday through Wednesday, trading activity improved across the MBS and CMO sectors last week, fading Thursday with the early close and Friday holiday. Prices moved sharply higher with the overall bond market rally.

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Municipal Market Update

Municipal bond funds recorded inflows for the week, as weekly reporting funds experienced $1.63B in inflows in the latest reporting week, after experiencing outflows of $287.201MM the week prior.

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SBA Market Update

The SBA sector continued to benefit from strong demand for floating-rate securities in the holiday shortened week. Activity centered on the shorter equipment-backed SBA pools. In addition, fixed-rate SBA securities continued to see interest as investors picked up pieces of the April 20-year DCPC.

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