Sector Update

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

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


WSJ: Mortgage Bonds Attract Investors in Low-Yield World

“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.”


Sector Updates

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.

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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.

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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.

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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.

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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.

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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.

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