Sector Update

April 22, 2019

Housekeeping Note: “Sector Updates” will not be published next week. We will resume normal publication on Monday, May 6th. Please feel free to reach out if there is anything we can do in the interim. We appreciate your readership.

Last week, Treasury yields declined, generally, by 1-2bps on maturities 2-years and longer. This snapped a two-week period in which yields moved higher by 12-17bps across the curve. The economic calendar is fairly quiet this week and markets will likely focus on existing and new home sales data along with the first release of Q1 GDP this Friday.


Spread Commentary

What We’re Reading

Vining Sparks:

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


WSJ: Fed Officials Contemplate Thresholds for Rate Cuts

“Federal Reserve officials are starting to talk about the conditions under which they would cut interest rates, including a scenario where inflation drifts lower even if the economic growth doesn’t falter.”


Bloomberg: Yield Curve Blurry? Try Out These Slowdown Predictors

“…there are other indicators that market observers follow for the same reason, and the current uncertainty about the yield curve makes them more important than usual.”

Sector Updates

Adjustable Rate Mortgage Market Update

Yield spreads between hybrid ARMs and Treasuries were unchanged last week, as the broader bond market moved up in price, sending yields slightly lower across the curve.  ARMs outperformed their fixed-rate counterparts, with yield spreads widening on this product approximately 3 to 5 basis points for the week.

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Agency Market Update

Treasuries traded in a fairly tight range during the holiday-shortened week and yields ended the abbreviated trading day on Thursday largely unchanged from the prior week.  The spread between 1- and 5-year Treasuries is still negative but the 2s-to-10s slope has steepened marginally and now stands at 18 basis points.

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Fixed Rate Mortgage Market Update

Yield spreads on current production MBS to Treasuries widened last week, with 15-year increasing 5 bps to 47 bps, while 30-year widened 3 bps to 74 bps. The MBA Refinance Index declined modestly once again last week; however the index remains elevated at 1453.

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Municipal Market Update

Municipal prices were steady across the curve on Monday. On Tuesday they were mixed, as the front-end was steady, while bonds maturing 10 years and longer weakened. On Wednesday municipal prices weakened across the curve.

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SBA Market Update

The USDA recently announced the implementation status of the 2018 Farm Bill signed into law on December 20th, 2018.  Limits on USDA loans were bumped up to increase the amount producers can borrow through direct and guaranteed FSA loan programs.

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CMO Market Update

CMO spreads to Treasurys tightened one basis point for the second consecutive week. For 5 and 10 year Agency Sequentials and PACs, spreads have backed off recent highs but remain within a basis point or two of those levels reached in late March.

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