April 27, 2020
Last week markets were remarkably calm given the disastrous economic news releases. Spreads were generally tighter in the sectors we monitor as well. The calmness and spread tightening are potentially an indication of just how much bad news is already priced into markets. On the flip side, it could also be indicative of how much influence the Fed has over markets currently. In truth, it is certainly a mixture of both. This week we have an FOMC announcement and Q1 GDP to look forward to. There are also more corporate earnings statements on tap. Of interest, Verizon reported that their call volumes are significantly higher, about 800 million phone calls per day. According to Verizon’s CEO, that is double the calls that typically occur just on Mother’s Day happening every day now. So far this morning, stocks are working on erasing last week’s losses, and Treasury yields are generally headed up.
Not long after we wrote last Monday that the CME Group clarified oil futures can trade negative, it happened. In a day of trading like no one has ever witnessed, the May contract closed at negative $37.63 on Monday. Oil bounced back during the week as contracts rolled closing Friday at $16.94; however, oil is under pressure again this morning. Currently oil is down approximately 25% to $12.62 per barrel for June delivery. Storage capacity continues to diminish. According to the U.S. Energy Information Administration, 60% of U.S. working storage capacity is currently utilized. More importantly, in Cushing, Oklahoma, 76% of capacity is utilized as of April 17th, the prior week it was at 69%. As contract expiration approaches on/around May 19th, it will likely be interesting to watch again.
Last week we wrote in regard to Mortgage Servicers, “Only time will tell, but as it stands right now, the FHFA is standing against a growing chorus of market participants to do something.” It didn’t take long as the FHFA announced on Tuesday that the “advance obligation limit” for servicers would be capped at 4 months. While it is not the liquidity facility servicers wanted, it does help put a lasso around potential commitments.
SBA PPP Links
Treasury: PPP Loans Frequently Asked Questions
PPP Lending Facility (PPPLF)
Federal Reserve: Paycheck Protection Program Lending Facility (PPPLF) Term Sheet
Federal Reserve: PPPLF Frequently Asked Questions
Notable news from this past week includes:
- Oil prices collapsed and closed on Monday (4/20) at -$37 per barrel
- Mortgage servicers got relief. Only responsible for 4 months of missed payments.
- Stores in Germany reopen to lackluster crowds.
- Treasury “requests” publically traded companies return PPP loans.
- The PPP received new funds and reopens today (4/27) at 10:30am EDT.
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Tuesday (5/12): Banks: The End of LIBOR (1 CPE)
Thursday (5/14): Credit Unions: The End of LIBOR (1 CPE)
What We’re Reading
Market Today | Daily
Weekly Recap | Weekly, Friday
Brokered Deposit Rate Indications | Weekly, Monday
Investment Alternatives Matrix | Weekly, Tuesday
MBS Prepay Commentary (April) | Monthly, 5th business day
SBA Prepay Commentary (April) | Monthly, 10th business day
Faced with withering share prices and falling yields on safe government bonds, portfolio managers are seeking out returns in an array of strategies that in some instances take them into esoteric corners of the financial markets.
Strategic Insight: Fed Announces $2.3 Trillion of Additional Support to the Economy
This Strategic Insight looks at additional measures the Federal Reserve took on April 9th and describes them while providing a takeaway for how we think they will affect financial institutions.
Strategic Insight: Potential for Selling Held-to-Maturity Securities for Liquidity Purposes
Based on this guidance from the FDIC, we believe financial institutions that have been negatively impacted by a reduction of liquidity due to COVID-19 may be able to sell securities classified as HTM without tainting a portfolio or jeopardizing the ability to use this classification in the future. However, each bank should check with its financial statement auditor for further clarification.
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Adjustable Rate Mortgage Market Update
Last week, the 10-year note rose 7 basis points to 1.63%, remaining below its March ending level of 1.74%. On the data front, recent economic data confirmed that the U.S. economy is on an improving trajectory. The U.S. economy grew at an annualized rate of 6.4% in the first quarter, slightly below consensus expectations. Core […]Continue Reading
Agency Market Update
Treasury yields on the longer end of the curve resumed their march higher last week after three consecutive weeks of declines. The 5-year note increased by 3 basis points to 0.85% and 10-year notes increased by 7 basis points on the week to 1.63%. It was a busy week highlighted by the April FOMC meeting […]Continue Reading
Fixed Rate Mortgage Market Update
Fed Support The Federal Reserve’s agency mortgage purchases totaled $29.6bn last week. The Fed continues to focus on current production coupons as the most heavily purchased securities were UMBS 30-year 2.0s and 2.5s with total volumes of $11.8bn and $8.6bn, respectively. Last week Fed Chair Powell reiterated the Fed’s commitment to continue to add […]Continue Reading
Municipal Market Update
In this week’s Municipal Market Update, we highlight the following: Municipal prices were mostly steady on Monday and Tuesday, they weakened on Wednesday and Thursday, and were steady on Friday, as reflected by weekly data for the Municipal Market Data (MMD) Triple-A Scale; also shown are the yields for the Municipal Market Advisors (MMA) Triple-A […]Continue Reading
SBA Market Update
Fixed-Rate SBA DCPCs (SBAP) – May Auction This Week The May fixed-rate SBA DCPC auction this week should see strong investor interest as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. Supply in the secondary market for SBA fixed rate product has not kept up with demand; new issuance in […]Continue Reading
CMO Market Update
Monthly Trade Summary Analytics on April CMO trades exhibited some mean reversion in terms of WAL and Effective Duration after investors extended out notably in March. Customer purchases of fixed-rate CMOs in March projected to have a base case WAL of about 5 years. In April, new investments averaged a 3.8-year WAL, which is more […]Continue Reading