Sector Update

February 25, 2019

Treasury yields, almost basis point for basis point, gave back the prior week’s increases as stocks stretched their winning streak to nine weeks. Heading into Friday, yields were actually higher across the curve until markets caught wind of Fedspeak, echoing their minutes, of support for ending balance sheet normalization and concerns of inflation consistently falling below their 2% target. Yesterday evening, President Trump announced a delay to tariff increases on China scheduled to begin March 1st. This morning, yields are +/- 1bp from where they ended Friday. Economic data releases this week are strong from start to finish, you can follow them daily in the Market Today.

Spread Commentary

What We’re Reading

WSJ: Trump to Delay Tariff Increases on Chinese Imports

WSJ: Fed Embarks on a Rethink of its Inflation Target

Vining Sparks: Market Today

Vining Sparks: Weekly Recap

Adjustable Rate Mortgage Market Update

Yield spreads between hybrid ARMs and Treasuries held firm last week, as the broader bond market moved up in price, sending yields slightly lower across the curve. Hybrid ARM spreads have tightened in the month of February, lagging the performance of fixed-rate MBS, which have tightened at a slightly more aggressive rate.

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Agency Market Update

The most noteworthy event of last week was the Fed’s release of their January meeting minutes, and all signs pointed to very dovish sentiment among voters. The Treasury market mostly took the release in stride but yields did end the week slightly lower.

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Fixed Rate Mortgage Market Update

Yield spreads on current production MBS to Treasuries were mixed last week with 15-year ending the week unchanged at 48 bps, while 30-year tightened 3 bps to 75 bps.  The lack of volatility along with consistent investor demand has driven spreads tighter this month by 3 to 5 bps.

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Municipal Market Update

Issuance this week is forecasted to be $5.7B, which is well above last week’s revised level of $2.0B in issuance. The heavier new issue calendar coupled with bid lists should provide market participants with opportunities to fill their needs, as municipals remain in demand.

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SBA Market Update

The temporary disruption in SBA new issuance due to the recent government shutdown has resulted in low secondary inventory levels, while investor demand in the SBA sector remained high last week in floating-rate and fixed-rate SBA pools.

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CMO Market Update

Spreads for Sequentials and PACs were unchanged last week after the Treasury curve saw little movement.

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