Sector Update

February 8, 2021

The Treasury curve finished last week markedly steeper with longer maturities increasing 10-14 bps and shorter maturities falling 1-2 bps. In terms of how we got there, the 10-year increased throughout the week as the likelihood of a larger stimulus package, passed on a party line vote, increased. Naturally, with all the fiscal and monetary policies in effect, inflation has been (and will continue to be) a much-discussed topic in 2021. Markets seem to have made their opinion known with longer yields increasing and the yield curve steepening. Yesterday (2/7), Treasury Secretary Janet Yellen said in regard to unwanted inflation, “The most important risk is that we leave workers and communities scarred by the pandemic and the economic toll that it’s taken.”

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.

This Morning

Yields are +/- 2 bp of where they closed on Friday and major stock indices are 0.4% to 0.6% higher after putting in their best weekly performance since early November. In terms of scheduled economic releases and Fed appearances, it will be a quiet week.

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 Friday (2/5)

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 (January) | Monthly, 10th business day

WSJ: Covid-19’s Hit to State and Local Revenues Is Smaller Than Many Feared

“In the end, state revenues fell 1.6% in fiscal year 2020 and were 3.4% lower than projected before the pandemic, according to the National Association of State Budget Officers. While states expect revenues to decline 4.4% in fiscal 2021, which ends on June 30 for most, 18 states are seeing revenues come in above forecast.”

Vining Sparks: MBS & Prepayment Update: Volatile 2020 Comes to an End

Last year was one for the records in the mortgage market. This presentation looks back over 2020 at what happened and how different prepay models performed over the year. Some did better than others. It is always important, but especially in this environment, that robust prepayment assumptions are used. We also make note that Bloomberg is releasing a model update and provide some background and comparisons.

Vining Sparks: Coronavirus Chartbook

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2023
This is a publication of Vining-Sparks IBG, LLC
775 Ridge Lake Blvd., Memphis, TN 38120