January 6, 2020
Yields were relatively-flat to slightly-increased through Thursday of last week. However, that ceased to be the case as reports of a U.S. airstrike in Iraq killing Iran’s top commander, Qassim Soleimani, circulated. The market reaction was what most would expect as treasury yields and stock prices fell and oil and gold prices increased. For the week, Treasury yields finished 5-9 bps lower on maturities from 2-10 years. So far today, markets are relatively stable, and yields are +/- 1 bp from where they closed on Friday.
Weekly Spread Commentary
- 2s to 10s declined 4 bps, 9 bps off high of 35 bps reached on 12/31/19.
- Agency Bullets were flat.
- Agency Callables were 1-3 bps wider.
- MBS were wider, 15-year was 3 bps wider and 30-year MBS was 2 bps wider.
- CMOs were unchanged on the week.
- Corporates were 3-7 bps wider in a steeping fashion.
- BQ Munis were 2-3 bps wider.
- GM Munis were 9 bps wider.
- Taxable Munis were 4-6 bps 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 (December) | Monthly, 5th business day
SBA Prepay Commentary (December) | Monthly, 10th business day
“Some debt investors are taking a second look at mortgage bonds after a summer slump pushed yields on the securities to their highest levels in years relative to U.S. Treasurys.”
Adjustable Rate Mortgage Market Update
Since the rally at the end of 2018, ARM pricing spreads have widened significantly, reacting strongly to each move lower in rates. For example, 5/1 ARMs have a 60 bp spread, almost 32 bps wider than they were in mid-February. Longer-reset 7/1s and 10/1s have a 62 and 64 bp spread, respectively, approximately 24 and 14 bps wider than levels in mid-February.Continue Reading
Agency Market Update
Agency bullet spreads were little changed, while agency callables largely widened versus Treasurys. As mentioned throughout much of December, agency bullets remain attractive sale candidates given spreads remain at the tightest levels in nearly a year.Continue Reading
Fixed Rate Mortgage Market Update
MBS couldn’t keep pace with comparable Treasurys last week, as 15-year widened 3 bps to 63 bps and 30-year widened by 2 bps to 94 bps. While yield spreads are off their highs from August, the widest gap since 2013, spreads remain compelling compared to levels observed in recent years.Continue Reading
Municipal Market Update
Municipal prices started the week mixed, were steady on Tuesday, and strengthened on Thursday and Friday. New-issue offerings are forecasted to be $7.96B for the trading week.Continue Reading
SBA Market Update
The January fixed-rate SBA DCPC auction this Thursday, which includes 10-year, 20-year, and 25-year maturities, is expected to draw strong investor interest as many portfolio managers are considering strategies to extend duration and call structures to neutralize asset-sensitive interest rate risk profiles and to protect against falling rate exposures. With the Fed likely on hold for the foreseeable future, floating-rate bonds may see a pickup in activity as part of barbell portfolio strategies.Continue Reading
CMO Market Update
We begin 2020 with the monthly trade summary for December. Fixed rate CMOs purchased in December are projected to yield 2.17% on average, an 11 basis point increase from November.Continue Reading