Sector Update

April 8, 2019

We mentioned last week the possibility that the decline in Treasury yields during March was overdone. Apparently, markets had enough and after four straight weeks of declines, yields closed out last week higher by 3-10bps on maturities 1-year and longer. Key drivers of higher yields included better economic news out of China, a bounce back in the ISM manufacturing index, and more progress on a trade-deal with China. Overall, there is still a great deal of unease in markets regarding where we go from here. To that end, I invite you to listen in on the Vining Sparks 2^nd Quarter Economic Outlook Webinar this Thursday. You can register to attend here.

Spread Commentary

• Overall theme of the week was tighter spreads as Treasurys sold off.
• Agency Bullets saw spreads 1-2bps tighter on 5-Year+ Maturities.
• Agency Callables were 3-10bps tighter with longer maturities tightening more.
• Corporates were 1-2bps wider.
• Municipals tightened in 7-10bps on the week.
• CMOs managed to remain unchanged on the week.
• MBS were mixed. 15yr MBS were wider by 2bps and 30yr MBS were tighter by 4bps.

What We’re Reading

Vining Sparks:

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

WSJ: Expected Earnings Pullback Sets Up Big Test for Bull Market

“So far, investors appear to have been looking past the expected profit crunch thanks to a more accommodative Federal Reserve. The central bank earlier this year decided to put interest-rate increases on hold for the rest of 2019, helping to stoke investors’ demand for riskier assets to push the S&P 500 up more than 15% since January—its best start to a year since 1998.”

Bloomberg: The Inverted Yield Curve Deserves Better Scrutiny

“On March 22, the yield on the benchmark 10-year Treasury note fell to 2.42 percent, dropping below rates on three-month bills for the first time since July 2007. The logical conclusion is that if a recession followed the past six inversions, the next one must be on the way. That’s not a fact, but it’s a belief that has permeated the investment community, with many market commentators citing prior inversions to confirm their conclusion that a recession must now be imminent.”

Sector Updates