Sector Update

January 11, 2021

What a month last week! If anyone was looking forward to easing into a new year – maybe this week will be a bit calmer. I wrote last week “…if Democrats win control of the Senate markets will have to recalibrate what this means for future stimulus, deficits, inflation, and taxes.” As it turns out, that happened, and Treasury yields “recalibrated” last week moving sharply higher on the mid-to-long end and staying anchored on the short end. A classic bear-steepener. The weekly change in yield graphs further down help put last week’s moves into context.

This Morning

After ending last week at record levels, (S&P 500, NASDAQ, and Dow Jones), major U.S. stock indices are slipping a bit this morning. Meanwhile, Treasury yields are 1 bp higher on the mid-to-long end in a slight continuation of the bear-steepener we saw last week. It will be interesting to watch this week if yields can maintain these current levels.

Upcoming Webinar (click to register)

2021 Economic Outlook: Tuesday, January 12th at 10:00am CST

Treasury Yields Jump Higher to Start 2021 – Easy come, easy go?

Looking at weekly changes in Treasury yields below, the 10-year hasn’t moved this month (in either direction) since the week ending May 5th, 2020 which saw the 10-year move +24 bps. What was going on that week? Stocks and yields surged as a jarring 10-million flip for the May nonfarm payroll report occurred and ignited optimism about the economy. You’ll also notice the 10-year proceeded to give back 19 bps the very next week as reality set in a little and the Fed’s outlook and resurgent virus took a toll on prior optimism.

Yield Curve Moves Markedly Steeper

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

 Yields Higher, Spreads Tighter

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 (January) | Monthly, 5th business day

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

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 Interest Rate Products: LIBOR’s Denouement

“It is clear from recent events that we have begun the final countdown to the end of LIBOR. The regulatory bodies have told us they are serious about the end of LIBOR and banks need to be moving forward with plans to adjust to the new reality.”

Vining Sparks: Coronavirus Chartbooks

PDF/Mobile: Coronavirus Chartbook (PDF)

Regulatory Links

Treasury: 1/8 SBA and Treasury Announce PPP Re-Opening; Issue New Guidance

FHFA: 12/23 FHFA Extends COVID-19 Multifamily Forbearance through 3/31/2021

Federal Reserve: 12/16 Federal Reserve issues FOMC statement

FDIC: 12/15 Combined Final Rule on Brokered Deposits and Interest Rate Restrictions (FIL-103-20)

FHFA: 12/10 FHFA Further Extends COVID-Related Loan Flexibilities

FHFA: 12/1 FHFA Extends Foreclosure and REO Eviction Moratoriums

Federal Reserve: 11/30 Statement on LIBOR Transition

Treasury: 11/30 Treasury and FRB Announce Extension of Four Lending Facilities Until 3/31/2021

Federal Reserve: 11/25 Minutes of the Federal Open Market Committee, November 4-5, 2020

FDIC: 11/20 Agencies Provide Temporary Relief to Community Banking Organizations

FHFA: 11/18 FHFA Announces Final Capital Rule for the Enterprises

LIBOR Transition Links

ARRC 12/18: FAQs — Updated 12/18/2020

ARRC 12/4: ARRC Releases Guide and Highlights New ISDA Webinar on USD LIBOR Endgame Developments

ARRC 11/30: ARRC Applauds Major Milestone in Transition from U.S. Dollar LIBOR

ARRC 10/15: FAQs — Updated 10/15/2020

ARRC 9/30: August – September ARRC Newsletter

ARRC 8/27: Recommended Hardwired Fallback Language for Bilateral Business Loans

ARRC 8/18: Transition Resource Guide for ARM and Private Student Loans

ARRC 8/7: ARRC Releases the SOFR Starter Kit

ARRC: Link to all ARRC Announcements

ARRC: Link to all ARRC Publications

ARRC: Link to ARRC Fallback Contract Language

Fannie Mae: LIBOR Transition Webpage

Freddie Mac: LIBOR Transition Webpage

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.
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