Sector Update

April 30, 2018

Very small investment grade market yield movements occurred last week on a net basis. No term on the Treasury curve finished more than 2bp from where it started. The small movements reflected more on stable conditions than on trading volumes, as activity held steady or picked up in most market sectors. Intraday yield movements also suggested greater activity than the net weekly yield changes, though no single day covered more than a 5bp trading range as measured by the ten-year Treasury.  A 25bp rate hike this quarter seems to be fully priced in to the markets already, however the market does not widely expect it this week. With most of the recent bout of economic indicators suggesting steady economic growth and with a general easing of international tensions, bond markets seemed to focus inward as portfolio managers reviewed holdings and took advantage of improved opportunities afforded by the trajectory of rates prior to last week’s stabilization.

Yield stability characterized other investment grade sectors much the way it did Treasuries. No noteworthy relative value shifts occurred. Other than a slight tightening of yield spreads versus benchmark curves in callable structures and cuspy MBS, almost imperceptible spread changes occurred other than a few issue specific movement in corporates.

Broad, but not deep, portfolio manager participation across the various market sectors last week might explain some of the yield consistency. On a relative basis activity in mortgage-related securities, including CMOs, probably fared best versus recent weeks, although like other sectors any activity would be better described as improved than impressive.

Friday’s five-year Treasury closing yield of 2.80% exceeded the daily closing average so far this year by 24bp and was 52bp higher than the average since one year ago. The ten-year Treasury finished at 2.96% Friday, 19bp higher than the year-to-date average and 51bp above the average for the last year.


Adjustable Rate Mortgage Market Update

Yield spreads between hybrid ARMs and Treasuries moved wider by 2 to 3 bps for the month of April.  Weighted average coupons for new-issue pools increased 20 to 30 bps as the result of higher mortgage rates.  Yields improved in April as well, leaving dollar prices only marginally higher month over month, despite the higher coupons. 

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Agency Market Update

Agency yields increased across the curve during the previous two weeks, with larger changes occurring on longer maturities.  Two-year Agency yields increased by 8 bps to 2.53%, 5-year Agency yields improved 9 bps to 2.88%, and yields on 10-year Agencies were higher by 13 bps to 3.26%.

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Fixed Rate Mortgage Market Update

MBS and CMO yield spreads versus Treasuries were stable last week. On a relative basis activity in mortgage related securities, including CMOs, probably fared best compared to other sectors versus recent weeks, although activity would be better described as improved than impressive.

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Municipal Market Update

Prices on municipal bonds weakened daily through Wednesday. On Thursday and Friday prices on bonds were mixed, and on both days the front-end was steady, while bonds maturing 10 years and longer strengthened. Volume for the trading week is projected to be $4.26B, which is below last week’s revised level of $7.95B in issuance.

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SBA Market Update

Activity in the SBA sector waned last week versus the prior very busy three weeks. Fixed-rate SBA volumes fell more than floaters, mostly as a function of the lack of auction-related activity. Floater activity gravitated toward lower-coupon bonds trading near par and new equipment-loan pools.

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