Sector Update

April 6, 2020

The big news last week, on the heels of the passage of the $2 Trillion CARES Act, was a provision aimed at helping small business. Called the Paycheck Protection Program (PPP), it establishes a pool of funds totaling approximately $349 Billion in loans (which are forgivable under certain circumstances) and is administered under the Small Business Administration’s 7(a) program. We wrote a Strategic Insight that featured the PPP as well as other ways for depositories to defend their bottom lines moving forward. Below I’ve continued a (hopefully) helpful list of links to resources.

ICBA: Detailing the Community Bank Provisions of the CARES Act

SBA: Coronavirus (COVID-19): Small Business Guidance & Loan Resources

SBA: Paycheck Protection Program

FDIC: The FDIC Announces a 30-Day Grace Period for the Call Report for the First Quarter of 2020

Federal Reserve: Agencies announce changes to the community bank leverage ratio (CBLR)

The general mood in markets this morning is one of optimism. So far today, U.S. equity indices have already earned back last week’s losses and tacked on some gains. Treasury yields are up 2-6 bps across the curve. I am certain that as a country we will conquer and rebound from this pandemic but I think it may take longer than we all hope for though for a couple reasons. First, the “cure” for what ails (social distancing) will likely cause continued and probable further economic slowdowns. Second, have we already forgotten the two back-to-back “chart breaking” initial jobless claims numbers? Last week’s 6.6 Million is roughly 10 times that of the previous weekly high during the Financial Crisis. True, continuing claims (3 Million) are “only” 45% of the previous peak of 6.6 Million but it’s safe to assume we’re headed back that direction. Like most businesses, many Americans’ “balance sheets” are not designed to absorb a sudden and totally unexpected loss of revenue. Record stimulus measures will no doubt help ease these burdens, but it takes time and time is of the essence for many Americans.

Upcoming Webinar – Click to Register Below

Tuesday (4/7): 2020 Quarterly Economic Outlook Webinar

Tuesday (4/14): Banks: Balance Sheet Management and Your Loan Portfolio

Thursday (4/16): Credit Unions: Loan Participation Market Overview

Food for Thought

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: Defending Your Bottom Line – Phase II: Wholesale Borrowings and Leverage

In terms of depositories defending their bottom lines, Phase I of deploying excess cash seems to be winding down. This Strategic Insight addresses different ways to fund leverages (traditional and otherwise) and uses of those proceeds. Notably, the Paycheck Protection Program (PPP) to be operated under the SBA 7(a) umbrella.

Vining Sparks – Interest Rate Products: Hedging Short-Term or Floating Rate Funding

Here is a presentation explaining a short-term funding hedge strategy. The current dislocation in LIBOR results in a negative funding cost for the first 3-month period (assuming we use 3-month FHLB advances as the borrowing source). Those executing this strategy should expect their funding cost to approximate the fixed rate on the swap plus/minus the normal spread between 3-month LIBOR and their borrowing source. Normal spreads can be seen in the presentation. The presentation also includes information on the accounting for this transaction. Of course we provide all the accounting support.

WSJ: Struggling Borrowers Want to Pause Their Mortgage Payments. It Hasn’t Been Easy.

“That has proved daunting to the companies, many of which are nonbanks and don’t have deposits or other business lines to cushion them. Nonbank lenders originate about 60% of U.S. mortgages.”

WSJ: How the Muni Market Became the Epicenter of the Liquidity Crisis

“Calmed by Congress, muni selling has slowed for now, according to MSRB data. But with a vast chunk of the market sitting in mutual and exchange-traded funds that investors can easily exit, another shock could provoke further outflows, causing prices to plummet again, analysts and money managers said.”

Vining Sparks: Coronavirus Chartbooks

PowerPoint: Coronavirus Chartbook (PWPT)  

PDF/Mobile: Coronavirus Chartbook (PDF/Mobile)

Sector Updates

Adjustable Rate Mortgage Market Update

Last week, a reprieve in the back-up in Treasury yields proved to be short-lived as remarks from a key Fed leader reignited focus on the central bank’s plans for aggressive monetary policy tightening.  New York Fed President, John Williams, stated that raising interest rates in 0.50% intervals was a “reasonable option.”  The yield on the […]

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Agency Market Update

The Treasury curve steepened last week as shorter-term yields declined while the longer end sold off, sending the 10-year yield to 2.83%, up another 12 basis points from the week before.  With the 10-year yield moving higher, the 2s-to-10s spread had un-inverted the previous week, and last week the 3s-to-10s spread moved into positive territory […]

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Fixed Rate Mortgage Market Update

Current Yield Spreads The Treasury curve steepened again last week as the market digested the latest inflation data.  The 2s/10s slope increased 19 bps to 38 bps as the 2-year Treasury yield declined 6 bps to 2.45% and the 10-year Treasury yield increased 13 bps to 2.83%. Headline and core CPI for March accelerated from […]

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Municipal Market Update

In this week’s Municipal Market Update, we highlight the following: Municipal prices weakened last Monday, were mixed on Tuesday and Wednesday, and steady on Thursday, 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 Scale; New issue offerings for […]

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SBA Market Update

Fixed-Rate SBA DCPCs (SBAP) Investor interest in fixed-rate SBA DCPCs remains strong as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. The DCPC auction priced at historically tight spreads for much of 2021; however, spreads have widened approximately 90 bps since June 2021. Debenture rates increased and yield spreads widened […]

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CMO Market Update

CMO activity was lighter than usual last week ahead of Thursday’s early close and the holiday weekend. One structure that saw decent demand was a 3.0% PAC off FNCL 4.0% collateral. Yield Book projects a WAL of 4.3 in the base case, with minimal extension in rising rates scenarios (around 5 years +300 bps). As […]

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