Sector Update

April 5, 2021



Last week was a return to the “usual” in some regards, but not in all. The recent trend has been towards higher yields and a steeper yield curve. We got higher yields but what was unusual is that 2- to 7-year maturities saw the largest increases, even the 2-year had what I’d consider a notable move, increasing 5 bps, while the 10-year ended the week up 4 bps. So, we saw a slightly flatter curve by 1 bp.

If you look throughout the charts below, the trend, even before the previous seven-week run (8 out of 9 now), was broadly towards a steeper curve and increasing intermediate to longer yields. This makes sense as vaccination progress, economic data, and economic stimulus simultaneously flow through in what could be described as a virtuous circle.


A Few Points to Start Your Week


LIBOR Update: NY Legislature Passes Solution for Tough Legacy Contracts, Awaits Governor’s Signature

Here is a quick update on a piece of legislation suggested by the ARRC, passed by New York State, and awaiting the signature of Governor Cuomo. If signed, it will mark an important milestone in ensuring a smooth and orderly transition away from LIBOR. It should remove a great amount of uncertainty from certain loans and bonds governed by New York State law, which are many. The impact on government and agency debt will be minimal, if any, as those will be addressed in separate efforts.


Mortgage Prepay Speeds Released This Week

Many MBS investors should be interested in this week’s prepay speed release. Mortgage rates have certainly moved up, the 30-year moved +45 bps over the last seven weeks to 3.17 and the 15-year has moved +26 bps to 2.45 according to the Freddie Mac PMMS. This upcoming reading could offer a first glimpse at declining refi activity in some coupons. As we have discussed before though, there is a lag between higher mortgage rates and slowdowns in refinances. As always, we will know more later this week when the data is released.


Upcoming Webinars – (1 hour CPE available)

General 4/8: Vining Sparks’ 2nd Quarter Economic Outlook

Bank 4/13: Libor Update, Are you Ready?

Credit Union 4/15: Libor Update, Are you Ready?


Bond Academy – April 19-22, 8-Session Virtual Conference Series

We are excited to introduce our virtual Bond Academy, an 8-part series designed to provide depository portfolio managers with the basic knowledge needed to help plan and create effective investment portfolios.

Bank: 4/19 – 4/22: Two sessions daily at 10:00 am and 1:30 pm Monday through Thursday

Credit Union: 4/19 – 4/22: Two sessions daily at 11:30 am and 3:00 pm Monday through Thursday

For more information, please contact your account representative or email info@viningsparks.com.


Today

Treasury yields are lower from Friday’s close and the curve is slightly steeper. Broad U.S. equity indices are up so far this morning.



Equity Index Performance Through Q1-2021


Bond Index Performance Through Q1-2021


Long yields maintain, Intermediate yields gain steam, Short yields noticeably up


10-Year yield back within 16 bps of where it started 2020, 5-year off by 70 bps


Yield Curve Shape – 2s-10s still steep, 2s-5s continues higher






Food for Thought – SBA DCPC Investments

With the upcoming April DCPC auction this week, I thought it’d be interesting to take a look at the outstanding universe. Sometimes, investors will see the 20+ year maturity and conclude it is too long. However, SBA DCPCs factor down though, similar to MBS, over time. If we consider where the universe of these bonds currently stands, you can see historically by the time a DCPC ages 7 years the remaining balance is around 45- 50% and by the time 10-years have elapsed, the remaining balance is approximately 20-25%.



Sector Commentary (click on links for more in-depth look)



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 (March) | Monthly, 5th business day

SBA Prepay Commentary (March) | Monthly, 10th business day


Vining Sparks: Strategic Insight: NY Legislature Passes Solution for Tough Legacy LIBOR Contracts

As the cessation of Libor approaches, this is a quick update on a piece of legislation suggested by the ARRC, passed by New York State, and awaiting the signature of Governor Cuomo. If signed, it will mark an important milestone in ensuring a smooth and orderly transition away from LIBOR. It should remove a great amount of uncertainty from certain loans and bonds governed by New York State law, which are many.


WSJ: A 28% Tax Rate Will Cost Companies, but Not Equally

“A higher tax rate would cost some companies more than others—essentially, the same firms that benefited most from 2017’s corporate-rate cut. That includes utilities, regional banks, many retailers and other companies that sell goods and services primarily in the U.S.”


Vining Sparks: Coronavirus Chartbook


INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120