Sector Update

February 19, 2019

Treasury yields managed to squeak out increases on the week with the majority occurring in 2-5 year maturities. Last week we noted it had been “the third consecutive week we’ve seen Treasury yields fall” and that it may turn into a fourth week of declines “unless markets see progress on trade talks with China, a path to avoiding another government shutdown, and/or better global economic news.” As it turned out, two out of three materialized.

On Thursday, markets were spooked though by the biggest decline in retail sales since 2009. There has been speculation about the Retail Sales decline reported and to keep things interesting, this morning, Walmart shares surged as “holiday sales crush estimates”.

Spread Commentary

What We’re Reading

CNBC: Fed Gov. Brainard: ‘Downside risks have definitely increased’ on the economy

WSJ: Negative Yields Mount Along With Europe’s Problems

WSJ: The Bank for Japanese Farmers That Fuels the Global Lending Market

Vining Sparks: Market Today

Vining Sparks: Weekly Recap

Adjustable Rate Mortgage Market Update

Yield spreads on hybrid ARMs to Treasuries tightened 2 to 4 basis points last week, which was the result of a modest bond market sell-off that generally sent yields higher across the curve.  Spreads have tightened recently but remain wider compared to levels at the start of December.

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Agency Market Update

The Treasuries market had a roughly 10 basis point swing last week across the curve, with yields ending Friday roughly in the middle of the trading range and somewhat higher than the previous week. The 2- to 5-year part of the curve is still inverted and the 2- to 10-year spread flattened to approximately 15 basis points.

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Fixed Rate Mortgage Market Update

Yield spreads on current production MBS to Treasuries were mixed with 15yr MBS ending the week 1bp tighter and 30yr MBS 1bp wider, as Treasury prices declined modestly.

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Municipal Market Update

Last week the yields on the two-, 10- and 30-year maturities on the MMA Triple-A Scale were steady from Thursday to Friday and they ended the week at 1.67%, 2.40% and 3.10%, respectively. Overall, week-over-week the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond rose two bps and the yield on the 30-year GO bonds rose three bps.

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SBA Market Update

SBA prepayment speeds in February for both Equipment and Real-Estate SBA 7(a) pools declined after increasing the prior month.  Equipment pools printed a CPR of 13.62, a decline from 15.09 CPR the previous month.

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CMO Market Update

Spreads to Treasury yields for Agency PACs and Sequentials have widened 4-8bps over the last two weeks. They had been mostly unchanged to start the year. When compared to all product types we monitor, CMOs were the only sector in which spreads widened last week.

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