August 3, 2020
Treasury yields continued to grind lower last week and maturities in the 2-10 year range all closed at record lows on Friday. Last week, in regard to more significant declines in yields on longer maturities, we talked about “lower for longer” (maybe we should change it to lower for forever) and low inflation expectations. Over the weekend, a WSJ article discussed the Fed wrapping up a review started last year of their policy making. With short-term rates virtually at 0% and unlimited asset purchases occurring, the gist is the Fed would not want to be caught in a predicament where they have basically no room to advance their policies. The article suggest the Fed would take a “more relaxed view by allowing for periods in which inflation would run slightly above the bank’s 2% target, to make up for past episodes in which inflation ran below the target.” Perhaps the market is taking note as longer maturities have increased in yield this morning more than their shorter counterparts.
So far this morning, U.S. stock indices are up 1.0 to 1.5 percent. The Treasury curve’s slope is 2 bps wider from Friday’s close of 42 bps. From a yield perspective, Treasury bills are unchanged to 1 bp lower, 2- to 10-year maturities are unchanged to 3 bps higher, and long bonds are up 4-5 bps. Of interest this week to many readers, MBS prepayment information will be released, and we will have commentary available this Friday. Here is last month’s if you aren’t familiar with it.
Spread Commentary – Largely Tighter
(Click links below for more details)
- Government/Agency Space
- Bullets were unchanged on the week, remain wider YTD.
- Callables were mixed, short maturities flat to wider, long maturities tighter.
- Agency CMBS, MBS, and ARMs
- BQ Munis, 5-year 1 bp wider, 10-year 6 bps tighter, 15-year 1 bp tighter.
- GM Munis, 5-year 12 bps tighter, 10-year 13 bps tighter, 15-year 19 bps tighter.
- Taxable Munis, 5-year 4 bps tighter, 10-year 1 bp tighter, 15-year 11 bps tighter.
- Corporates, relatively unchanged, 1 bp wider for the week.
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 (July) | Monthly, 5th business day
SBA Prepay Commentary (July) | Monthly, 10th business day
Freddie Mac: Mortgage Rates Decrease Slightly
“Rates continue to remain near historic lows, driving purchase demand over 20 percent above a year ago.”
“Many business owners who felt unserved by their banks voiced their displeasure by moving their money elsewhere. Of businesses that secured PPP funding, about 28% received their loan from a lender with whom they had no prior relationship or a bank that wasn’t their primary one, according to a July survey of 931 firms conducted by Barlow Research Associates. About 44% of those borrowers said they would move at least some of their accounts and loans to the bank that came through for them during PPP, the survey found.”
Vining Sparks: Coronavirus Chartbooks
PDF/Mobile: Coronavirus Chartbook (PDF)
Federal Reserve: 7/29 Federal Reserve issues FOMC statement
Federal Reserve: 7/28 FRB extends through 12/31 lending facilities scheduled to expire on or around 9/30
Federal Reserve: 7/17 FRB modifies MSLP to provide greater access to credit for nonprofit organizations
Federal Reserve: 7/1 Minutes of the Federal Open Market Committee, June 9-10, 2020
FHFA: 6/29 FHFA Provides Tenant Protections
Federal Reserve: 6/25 Agencies finalize amendments to swap margin rule
LIBOR Transition Links
ARRC 4/17: ARRC Announces Its Key Objectives for 2020
Fannie Mae: LIBOR Transition Webpage
Freddie Mac: LIBOR Transition Webpage