July 1, 2019
We are publishing a broad market commentary this week due to the July 4th holiday. Individual sector updates will return next week. We wish everyone a happy and safe Independence Day.
Treasury yields closed out the second quarter of 2019 40-50 bps lower on maturities between 1-10 years. The second quarter was marked with increasing and greater uncertainty. You wouldn’t be able to tell judging by US equity markets though. For example, the S&P 500 posted its best first-half performance in 22 years (since 1997). We wrote at the end of the first quarter of headwinds to yields pushing back up. These headwinds included the lack of a trade deal with China, weakening global economic activity, meaningful changes in inflation expectations, and a “doveish” Fed. The second quarter provided no relief from these pressures and, by many estimates, deepened. In fact, sentiment has changed so much that markets have the odds of a Fed easing near 100% for the July 31st meeting. For reference, it was only 24% at the start of the quarter. The third quarter, much like the second, will likely be driven by these same factors.
Q2 2019 Spread Commentary
- Spreads largely pushed wider during the 2nd quarter of 2019.
- For the quarter, Agency Bullets widened 2-4bps in a flattening fashion.
- Agency Callables widened, more so in shorter calls and/or maturities.
- Corporates widened with the short end getting the biggest boost.
- BQ Municipals widened by 10-40bps with the short end getting the biggest boost.
- CMOs widened by 10-20bps for the second consecutive quarter.
- 15yr MBS widened by 7bps on the quarter to put it back even for the year.
- 30yr MBS tightened 7bps on the quarter, pushing it to 18bps tighter on the year.
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 (June) | Monthly, 5th business day
SBA Prepay Commentary (June) | Monthly, 10th business day
“The moves have come amid an escalating trade war between the U.S. and China that is pushing the world’s largest central banks—including the Federal Reserve—toward a looser monetary-policy stance as they fight to support flagging growth.”