Sector Update

January 27, 2020



Treasury yields declined sharply last week and continue to fall this morning as concerns around the coronavirus have increased. On Tuesday, the first recorded case in the United States was confirmed in Washington state. On Thursday, a suspected case was reported at Texas A&M University (later reported negative on Sunday 1/26). On Friday, the CDC confirmed a second U.S. case in Chicago and that they were currently monitoring 63 other potential cases in the U.S.

Right now, there are over 2,800 confirmed cases worldwide with at least 80 deaths, and 5 confirmed cases in the United States. Further complicating matters is the relatively-long incubation period of up to two weeks, during which a carrier may display no symptoms but is still able to spread the coronavirus. The Fed has a meeting this Wednesday, and while virtually no one expects a rate change, it will be interesting to see if they opine on the current situation and how they might react in the event of economic weakness. Currently, in addition to last week’s decline in Treasury yields, the 2Yr -5bp | 5Yr -7bp | 10Yr -8bp.


Food for Thought

We are seeing more bid lists and bond swap activity as we enter 2020, many are centered around taking gains. While there are many reasons portfolio managers look at transitioning from one group of bonds into another, there are only so many levers one can pull to make a swap successful. Here, I define “successful” as generating more income through the effective life of what is being sold. Simply put, “Am I better off selling this group of bonds today and reinvesting, or should I let the bonds paydown/mature and invest incrementally?” Below, I have summarized my take on creating a successful swap with the starting point being whether a loss, gain, or breakeven is established.



Weekly Spread Commentary



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 (January) | Monthly, 10th business day

 

WSJ: Wuhan Mayor Says Beijing Rules Partially Responsible for Lack of Transparency

“The mayor of Wuhan, the city at the epicenter of China’s viral outbreak, said rules imposed by Beijing limited what he could disclose about the threat posed by the pathogen, suggesting the central government was partially responsible for a lack of transparency that has marred the response to the fast-expanding health crisis.”


CNBC: Dow drops more than 400 points as coronavirus fears rise, travel stocks slide

“Overseas, global stocks took a hit, as the Japanese Nikkei 225 dropped 2% while the German Dax lost 2.6%. France’s CAC 40 also pulled back more than 2%. The Stoxx 600 index — which tracks a broad swath of European equities — tanked by 2.3%. The iShares MSCI Emerging Markets ETF (EEM) dropped 3.4%. Chinese markets were closed due to the Lunar New Year holiday.”

 

Sector Updates


Adjustable Rate Mortgage Market Update

Last week, yield spreads between hybrid ARMs and Treasurys ended their month-long tightening trend as conventional 5/1s and 10/1s widened 1 to 2 basis points. Week over week, Z-spreads were mixed for GNMA, FNMA, and FHLMC products. ARMs underperformed mortgage-related sectors with 15- and 30-year fixed-rate mortgages tightening 2 to 4 basis point on the week.

Continue Reading

Agency Market Update

Agency bullet spreads remain very tight but widened last week, particularly on the longer-end of the curve.  The agency bullet curve begins to steepen up past the 5-year part of the curve.  Callable agencies also widened last week.

Continue Reading

Fixed Rate Mortgage Market Update

Nominal yield spreads on MBS versus comparable Treasurys tightened last week, as 15-year contracted 4 bps to 55 bps and 30-year tightened 2 bp to 88. While yield spreads are off their highs from a few months ago because of strong demand, mortgage spreads are sitting at attractive levels.

Continue Reading

Municipal Market Update

Municipal prices started the week stronger, were steady on Wednesday, stronger again on Thursday and mixed on Friday. New-issue offerings are forecasted to be $5.53B for the trading week.

Continue Reading

SBA Market Update

SBA floating-rate pools with uncapped quarterly resets indexed to Prime experienced a pickup in activity last week with the majority of the activity in higher coupon 10-year equipment pools priced at moderate premiums.

Continue Reading

CMO Market Update

Spreads to Treasury yields tightened another 2 basis points for 3, 5, and 10-year Agency CMOs. This marks the third consecutive week of spread tightening in the CMO space. However, as mentioned in last week’s update, the sector still looks attractive.

Continue Reading
INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
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 © 2021
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120