Sector Update

February 7, 2022

A few points to start your week

Yields took off late last week moving 13-16 bps higher in a nearly parallel fashion
See this morning’s Market Today for a quick recap of last week
Munis struggle to start the year, look for more volatility and opportunities
- Most activity in 10-20-year maturities last week, 4% to 5% coupons most popular
With wider muni spreads, Interest Rate Products was very active last week hedging municipal bond purchases
Municipal bond funds posted outflows for third week in a row
MBS activity strongest in 20- and 30-year, 30-year spreads relatively wide and 15-year tight (see snapshot below)
- January prepay speed release shows broad declines (see tables below)
SBA DCPC (SBAP) auction this week, interest expected to remain strong
CMO trade activity last month showed purchases were primarily fixed rate
Mark your calendars for upcoming webinars, next scheduled is February 22^nd(schedule below)

Individual Sector Updates – Click to Access

Today – Yields relatively unchanged, curve slightly steeper, equities mixed

Municipal yields struggled with late week Treasury selloff, spreads still relatively wide – look for volatility and opportunities

Broad Index returns have suffered as yields have increased and spreads widened

Equities off to a tough, and volatile, start to the year

Upcoming Webinars – (1 hour CPE available, registration opens 2 weeks prior to each webinar)

1/11: 1st Quarter Economic Outlook Webinar (slides | webinar replay)

2/22 Bank: Positioning the Investment Portfolio for Performance

2/24 Credit Union: Positioning the Investment Portfolio for Performance

3/8 Bank: Balance Sheet Strategies in an Expected Tightening Cycle

3/10 Credit Union: Balance Sheet Strategies in an Expected Tightening Cycle

Treasury yields soar pushing yields above/towards pre-pandemic highs

Yield on 10- and 5-year maturities surpass pre-pandemic levels

Yield on 3- and 2-year maturities still lag pre-pandemic levels, continue to rise

Curve Shape – 2s5s moves flatter, 7 bps flatter YTD

Curve Shape – 2s10s moves flatter, 18 bps flatter YTD

January MBS prepay speeds released – show broad declines

What We’re Reading

Market Today | Daily

Weekly Recap | Weekly, Friday

Monthly Review (January) | Monthly, 1^st business day

Brokered Deposit Rate Indications | Weekly, Monday

Investment Alternatives Matrix | Weekly, Tuesday

MBS Prepay Commentary (January) | Monthly, 5^th business day

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

WSJ: Elevated Bond Yields Approach Key Milestone
“With the release of one report on Friday morning, the U.S. economy looked much stronger to investors than it did minutes earlier, not only increasing the chances that the Federal Reserve could raise interest rates at a rapid clip this year but making it likelier that the economy could withstand such a move.”

Vining Sparks: Loan Trading: Consumer Lending

It is important to stay abreast of market changes in rates and potential credit concerns that may be creeping in that could impact production and performance. We welcome the opportunity to assist you in evaluating your portfolio for areas of opportunity or provide additional color on this dynamic market.

Vining Sparks Interest Rate Products: Margin Compression: Causes and Solutions

In this article, we examine why the industry is facing margin compression, challenge some of the more prevalent assumptions about banks’ risks profiles and highlight our best ideas for dealing with the current environment.

Vining Sparks: Coronavirus Chartbook and Coronavirus State Charts