Sector Update

January 14, 2019

Last week we saw yields rise by 3-5 bps across the treasury curve. For the month, the yield curve has flattened by 3bps with all maturities 2-years and longer at or above where they began the month and well off their lows. So far this morning, stocks are off by about a half a percent and Treasury yields are virtually flat to Friday’s closing.

Corporates were the only sector measured that widened out last week. Given some companies softer forward guidance (see article below) it isn’t too surprising. Sectors we saw tighten were Agency callables, mostly a function of a decline in volatility, and Munis, likely driven by a supply and demand imbalance. Of note last week, we saw FHLB and Freddie Mac come in and call some of their bonds issued last year. Agency Bullets, CMOs, and MBS all held relatively firm on a spread basis for the week. From a longer term perspective, spreads remain wider almost without exception, when measured on a year-over-year basis.

What We’re Reading

WSJ: Tax Cut Helped Banks’ Earnings Growth – But Not for Much Longer

WSJ: IRS Reopens Key Program for Mortgage Loans

WSJ: Slowing Earnings Growth, Gloomy Forecast Add to Stock Market’s Woes

Vining Sparks: Market Today

Vining Sparks: Weekly Recap


Adjustable Rate Mortgage Market Update

Yield spreads for new-issue hybrid ARMs to Treasuries remained stable last week, as the overall bond market traded in a narrow range that resulted in minimal increases to yields. The ARM origination cycle continued last week, with 397.3mm in new issue ARM selling primarily from Fannie Mae (163.2mm) and Ginnie Mae (168.2mm).  Supply was focused in Ginnie Mae 5/1s (164.4mm) and Fannie Mae 5/1s (55.9mm). 

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Agency Market Update

The first full week of the year saw Treasury yields increase for maturities 2 years and out, and the yield curve resumed its recent flattening trend.  The yield curve remains inverted from 1 to 7 years.  Last week agency bullets tightened in slightly for shorter-term maturities.

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Fixed Rate Mortgage Market Update

Yield spreads on current-coupon production compared to Treasuries were largely unchanged on a week-over-week basis. Valuations remain attractive for buyers based on the spread widening that occurred during much of 2018. Performance has been strong over the past month, with MBS outperforming most of the other fixed-income sectors.

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Municipal Market Update

Investors in municipal bond funds put cash into funds last week, as weekly reporting funds experienced inflows of $1.554B, after experiencing outflows of $599.184MM the week prior. The four-week moving average was a positive $535.216MM, after being a positive $67.686MM the week prior.

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SBA Market Update

The January fixed-rate DCPC auction last week included 10, 20, and 25yr maturities.  Pool issuance in the January auction increased overall compared to the previous auction, while yield spreads were mixed depending on maturity term.  Investors were also active last week in floating-rate SBA pools as yields on these pools have moved higher with Fed rate hikes and spreads have widened over the last month.

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CMO Market Update

We’ll start this week with the December Trade Summary in case you missed it last week and we will finish with some historical spread observations. Fixed-rate coupons dominated our customer activity. Yields on purchases declined 26bps from 3.50 to 3.24 as Treasury yields fell month-over-month.

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