Sector Update

February 16, 2021



The Treasury curve finished last week steeper by 3 basis points and today yields on the long end of the curve are moving even higher. The 10-year yield has broken through 1.25% as fixed-income and equity investors alike are monitoring the key benchmark rate. Treasury yields and equities rose last week with the markets eyeing progress towards another stimulus package and signs of improvement in the fight against the pandemic.


LIBOR and New York State’s Budget

A recent event to be aware of is a potential fix for contracts (corporate bonds and other securitizations are contracts) governed by New York state law that are currently tied to LIBOR. Some of these lack contractual language sufficient to facilitate a transfer in the event LIBOR no longer exists and would be difficult (at best) to modify after the fact. Here’s a Bloomberg article on the subject.



Today

Treasury yields 5-years and longer are up 6-8 basis points from Friday’s close, while U.S. equity indices are mixed and little changed. In terms of economic news this week, there are several Fed officials on the tape today, plus January retail sales and FOMC meeting minutes will be released tomorrow.


Longer Maturities Moved Higher Last Week, Short-End Stuck, Curve Steepened


Yield Curve Shape – Asked last week, will it get any steeper? Answer, Yes




Food for Thought – MBS Prepayments Released February 5th

Please see the full Prepay Commentary Here

Big picture, prepayments declined but mortgage rates remain low – March and April will be interesting to watch



Speeds remain elevated though and newer vintages continue to ramp


Prepayment protection in “spec” pools still popular, 15-Year 2.5s of 2020 have approximately 90bps of rate incentive on average


Sector Commentary (click on links for more in-depth look)



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 (February) | Monthly, 5th business day

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


WSJ: Mortgage Investors look back to the Future

“If prepayment speeds remain very elevated, then originating as many mortgages as possible now and retaining servicing rights might be the best way to get ahead of an eventual upturn in the value of that servicing. Investors should also be watching so-called “recapture” rates, or the rate at which the firm servicing a mortgage is the one getting the refinancing business. Recapture is a way to turn prepayments into a longer-term benefit.”


Vining Sparks: Coronavirus Chartbook


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