Sector Update | ![]() |
August 30, 2021
Ending a two-week run of flattening, the yield curve steepened last week. Yields on maturities 3-years and in dropped or remained unchanged while longer maturities increase by 2-5 bps. Save Monday, yields increased throughout the week, peaking on Thursday as three separate Fed officials opined that the time to taper was “sooner rather than later” as Esther George, Chair of the Kansas City Fed, said. As you can notice in the chart below though, come Friday, Powell’s remarks sent yields down 4-5 bps as the tone was still interpreted as dovish. The S&P and NASDAQ closed at new record highs on Friday.
As benchmark yields increased during the week, demand was varied across sectors. Agency activity was concentrated in the 5-year area. In tax-free municipal securities, 4% and 5% coupons dominated activity with most maturities 20-years and shorter. On the Corporate desk, once the 10-year broke through 1.30% on Wednesday, activity picked up. In MBS, 15-year saw the most activity, but 20-year was a close second. In CMOs, cut-down coupons remained popular. The most common cut-coupons last week were 1.25 and 1.50.
Today – Yields down 2-3 bps, curve slightly flatter, equities largely up
Curve ends week slightly steeper, longer yields increase, shorter yields unchanged
Week-over-week, intermediate and longer yields climb
Yield Curve Shape – 2s-5s remains above 20-day MA while 2s-10s pushed back through last week
Sector Commentary (click on links for more in-depth look)
- Government/Agency Space
- Bullet spreads +1 bp on long end of curve
- Relatively constant for past month, longer end has widened
- Callables mixed
- 5-year and shorter unchanged to 1 bp wider
- Longer maturities 3-4 bps tighter
- Last week, issuance $10.0 Billion — $2.2 Billion called
- Bullet spreads +1 bp on long end of curve
- Agency CMBS, MBS, and ARMs
- SBA DCPC spreads 2 bps tighter on the week
- Spreads are 3 bps wider over the past month, 6 bps tighter YTD
- Spreads on seasoned collateral can be higher, more premium risk though
- Secondary pieces move quickly when available
- SBA Floating 7(a) Pool speeds released (8/13)
- Prepayments picked up, more so in longer real-estate pools
- NFIB Small Business Optimism Index declined in most recent survey
- Single biggest issue remains quality of labor
- 49% report having job openings they are unable to fill, breaking a 48-year record
- Inflation concerns eased but remain elevated
- Agency MBS spreads were wider, 15-year 2 bps tighter and 30-year 4 bps tighter
- Freddie Mac PMMS shows mortgage rates +/- 1 bp from prior week
- 30-year rate at 2.87% (+1 bp from prior) | 15-year rate at 2.17 (+1 bp from prior)
- YTD — 30-year is + 20 and 15-year is unchanged
- 30-year is +22 from all time low on 1/7/21 of 2.65
- 15-year is +7 from all time low on 8/5/21 of 2.10
- Lower coupons and/or prepay friction collateral are still in focus
- Agency CMOs spreads 2 bps tighter on the week
- Cut-coupons still favored by many
- Cut-coupons still favored by many
- SBA DCPC spreads 2 bps tighter on the week
- Municipals
- BQ Munis, 5-year 1 bp tighter, 10-year 5 bps tighter, 15-year 6 bps tighter
- GM Munis, 5-year 2 bps tighter, 10-year 5 bps tighter, 15-year 6 bps tighter
- Taxable Munis, 5-year 4 bps tighter, 10-year 4 bps tighter, 15-year 4 bps tighter
- Corporates
- A-Rated Corporates – 2-year 2 bps tighter, 5-year 2 bps tighter, 10-year 2 bps tighter
- Vining Sparks Interest Rate Products
- Swapping longer, fixed-rate municipal bonds to floating is most popular transaction with clients
- Current floating yields can vary widely depending on underlying fixed coupon on the bond hedged
- Can also swap existing municipal positions in your portfolio
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 (August) | Monthly, 5th business day
SBA Prepay Commentary (August) | Monthly, 10th business day
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