Sector Update

January 29, 2018



Last week the term structure of interest rates broke with short-term trends and seemingly resumed the long-term trend toward a flatter yield curve with higher short term rates. While ten-year Treasury yields finished the week where they started, yields for maturities from two through five years increased by three to six basis points. For perspective, this left the two-year Treasury yield 89bp higher than a year ago, while the ten year is only up by 16bp.

All investment grade sectors performed harmoniously last week, with little to report in terms of yield spread differences. The municipal sector did manage to behave in a surprising fashion yet again, though this time by behaving in like fashion to other sectors after consistently undergoing large yield spread swings on a weekly basis for the last couple of months. While not consistent in direction, the net effect of these swings left spreads considerably tighter. The Municipal Market Update therefore provided some of the more interesting reading of late, and despite the smaller movements provides some interesting insights into a sector on the heels of heavy redemptions, with soft issuance likely to disappoint some of the recipients of these redemptions. Meanwhile, the recent changes in the yield curve created relative value changes within some sectors not apparent when comparing the sectors to each other. This is especially true of the mortgage sector.

Activity levels increased last week, as some portfolio managers attacked cash accumulations from recent redemptions and a growing number also addressed portfolio imbalances with goals or policy metrics. While the pace of inquiries from portfolio managers last week exceeded the prior several, volumes remain below what would be suggested by the current environment.

Friday’s five-year Treasury closing yield of 2.47% exceeded the daily closing so far this year by 11bp and was 53bp higher than the average since one year ago. The ten-year Treasury finished Friday at 2.66%, 10bp above the year-to-date average and 32bp above the average for the last year.

 

 






Adjustable Rate Mortgage Market Update

Yield spreads on new-issue hybrid ARMs to Treasuries tightened approximately 1 basis point last week, despite the second straight week of spread widening experienced in fixed-rate MBS. Overall, it was a relatively quiet week in terms of flows in the secondary market for ARMs.

Continue Reading

Agency Market Update

Last week, Agency yields rose across the curve, particularly for shorter term maturities, which flattened the curve.  Two-year Agency yields moved higher by 6 bps to 2.15%, the 5-year Agency yield increased 2 bps to 2.53%, and the yield on the 10-year Agency was up 1 bp to 3.01%.

Continue Reading

Fixed Rate Mortgage Market Update

Mortgage related security yields increased last week continuing the trend higher this year, as treasury yields and mortgage rates have pushed higher. Mortgage yield spreads versus Treasuries widened last week as 30yr Treasury yields versus 30yr MBS moved slightly higher and are currently in the upper end of the trading range so far for 2018.

Continue Reading

Municipal Market Update

Municipal bond funds reported investors put cash into funds for a third week, as weekly reporting funds experienced inflows of $781.160MM, after experiencing inflows of $1.18B the week prior. The four-week moving average was positive at $744.164MM, after being positive at $503.830MM the week prior.

Continue Reading

SBA Market Update

Activity in the government-guaranteed loan sector was centered on fixed-rate DCPC structures and purchases of USDA loans in the secondary market.  The limited activity in floating-rate SBAs continued to be centered on trading par handle floating-rate issues.

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