Sector Update

July 12, 2021



Yields declined last week, bottoming out Thursday morning before staging a Friday comeback that cut most yield declines in half for the week. Some of what is happening seems counterintuitive at times with the 10-year yield declining in 7 of the 8 past weeks and the 5-year declining in 5 of 8 (see graphs below).

Last week, the Fed’s June minutes acknowledged more risk to their inflation forecasts but still viewed inflation “as largely reflecting temporary factors”. Consumer expectations, as measured by the University of Michigan survey (graph below), expect surging inflation, at least during the next 12-months. The reading is through May so it will be interesting to see if the survey reflects the Fed’s feeling in their June reading.

There is an interesting WSJ article this morning, How to Solve the Mystery of Falling Bond Yields. The author offers an opinion that unlike the 2013 taper tantrum perhaps “Investors have learned their lesson. The Fed is again readying the markets for the tapering of its bond purchases, but instead of a repeat of 2013’s tantrum, there has been a rush to buy bonds, and a big drop in yields.”




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Today – Yields up slightly, curve marginally flatter, and equities essentially


Yields end week lower – led by longer maturities in a bull-flat move for second week in a row


2- and 5-Year off recent highs of the year


Yield Curve Shape – 2s-5s at lower end of recent range, 2s-10s continues flattening






Food for Thought – Prepay speeds broadly increase after two-months of declines


Sector Commentary (click on links for more in-depth look)



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 (July) | Monthly, 5th business day

SBA Prepay Commentary (June) | Monthly, 10th business day


WSJ: How to Solve the Mystery of Falling Bond Yields

“So here is a possibility: Investors have learned their lesson. The Fed is again readying the markets for the tapering of its bond purchases, but instead of a repeat of 2013’s tantrum, there has been a rush to buy bonds, and a big drop in yields.”


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