Sector Update

December 7, 2020

Treasury yields moved higher in a steeper fashion last week. On maturities of 3-30 years, yields increased by 2-17 bps. Curve steepness measured by the 2s-10s increased by 13 bps to a spread of 82 bps, a level last seen circa October 2017. This increase was entirely driven by a 13 bps increase in the 10-year Treasury yield. I was tempted to simply write this was the largest weekly move I could recall in recent memory (which was true) but I’d always rather look at the numbers than rely on my memory. Turns out, the last time we saw a larger move in any direction was the week ended August 14th.

Sometimes Procrastination Pays Off?

Perhaps some welcome news last week from banking regulators titled Statement on LIBOR Transition will brighten the day of some. In short, the administrator of LIBOR has announced it will continue to publish most US LIBOR rates (settings) through June 30, 2023. Yes, you read that right, an additional 18-months from the originally planned cessation date of December 31, 2021. The ARRC also recently published a Guide on the Endgame for USD LIBOR (a nice 5-page summary in my opinion).

This Morning

Major U.S. stock indices are mixed with the NASDAQ up 0.4% and the Dow and S&P down 0.4% and 0.1% respectively. Treasury yields are lower by 1-4 bps in a flatter move but the 2s-10s remains within 3 bps of Friday’s close at 79 bps.

Food for Thought – December MBS Prepays Released, Slower but Still Elevated

The full prepay commentary will be released later today – below is a glimpse.

Sector Commentary

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 (November) | Monthly, 5th business day

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

WSJ: Employment Picture Darkening, Even More than Jobs Figures Suggest

“Fed officials, too, might be more inclined to step up their efforts to support the economy when they meet later this month. That could include committing to continue the central bank’s purchases of Treasurys and mortgage-backed securities until certain economic conditions are met. It might also tilt Treasury purchases more to longer-dated securities in an effort to put downward pressure on long-term interest rates.”

ARRC: Guide on the Endgame for USD LIBOR

“On Monday, November 30, 2020, U.S. and UK regulators and LIBOR’s administrator made a series of announcements regarding the end of U.S. Dollar (USD) LIBOR. Collectively, these announcements propose an endgame for USD LIBOR. They call for no new LIBOR contracts after end-2021, while giving legacy contracts sufficient time to wind-down. But what do they mean and how do they fit with the work of the Alternative Reference Rates Committee (ARRC)? Here’s what you need to know.”

Vining Sparks: Coronavirus Chartbooks

PDF/Mobile: Coronavirus Chartbook (PDF)

Regulatory Links

FHFA: 12/1 FHFA Extends Foreclosure and REO Eviction Moratoriums

Federal Reserve: 11/30 Statement on LIBOR Transition

Treasury: 11/30 Treasury and FRB Announce Extension of Four Lending Facilities Until 3/31/2021

Federal Reserve: 11/25 Minutes of the Federal Open Market Committee, November 4-5, 2020

FDIC: 11/20 Agencies Provide Temporary Relief to Community Banking Organizations

FHFA: 11/18 FHFA Announces Final Capital Rule for the Enterprises

FHFA: 11/13 FHFA Further Extends COVID-Related Loan Flexibilities

FDIC: 11/6 Interagency Statement LIBOR Transition for Loans (FIL-104-20)

Federal Reserve: 11/5 Federal Reserve issues FOMC statement

Federal Reserve: 10/30 Federal Reserve Board adjusts terms of Main Street Lending Program

Fannie Mae: 10/30 Fannie Mae Issues Inaugural Multifamily and Single-Family SOFR ARM MBS

FDIC: 10/29 Agencies Propose Regulation on the Role of Supervisory Guidance

FHFA: 10/20 Temporary Policy Allowing Purchase of Qualified Loans in Forbearance Extended

FDIC: 10/20 Temporary Relief from Part 363 Audit and Reporting Requirements (FIL-99-20)

FDIC: 10/20 Net Stable Funding Ratio (FIL-98-20)

LIBOR Transition Links

ARRC 12/4: ARRC Releases Guide and Highlights New ISDA Webinar on USD LIBOR Endgame Developments

ARRC 11/30: ARRC Applauds Major Milestone in Transition from U.S. Dollar LIBOR

ARRC 10/15: FAQs — Updated 10/15/2020

ARRC 9/30: August – September ARRC Newsletter

ARRC 8/27: Recommended Hardwired Fallback Language for Bilateral Business Loans

ARRC 8/18: Transition Resource Guide for ARM and Private Student Loans

ARRC 8/7: ARRC Releases the SOFR Starter Kit

ARRC: Link to all ARRC Announcements

ARRC: Link to all ARRC Publications

ARRC: Link to ARRC Fallback Contract Language

Fannie Mae: LIBOR Transition Webpage

Freddie Mac: LIBOR Transition Webpage

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