July 15, 2019
Broad US Stock Indices (Dow Jones, S&P 500, and NASDAQ) all hit new record highs last week and Treasury yields largely ended the week higher for the second week in a row. After last week’s Fed communications, it appears, perhaps, that market participants expect the Fed to let inflation run higher. This would be consistent with the curve movement last week. The curve pivoted at the 2-year maturity as those yields decreased while their longer counterparts increased, causing the curve to steepen. The 2s10s spread closed out the week at 27bps. For the year, the curve is within 1bp of its steepest level of 28bps on June 19th. On tap for this week, there is plenty more Fedspeak and the second-quarter earnings season kicks off.
- Agency Bullets tightened 2bps on the short end.
- Agency Callables tightened 2-5bps on 10-year and in maturities and 10bps on longer maturities.
- Corporates were 4-10bps wider.
- Munis tightened 4-9bps across the board.
- CMOs were unchanged save 5-year CMOs tightened in 5bps.
- MBS widened with both the 15-year and 30-year 4bps wider.
- By comparison, spreads on CMOs (wider YTD) and MBS (little changed YTD), make these areas look relatively attractive.
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 (July) | Monthly, 10th business day
“Stocks have busted through records recently, rising thanks in large part to dovishness from the Federal Reserve. The central bank has positioned itself to cut interest rates this month for the first time since the financial crisis.”
“Big banks start reporting second-quarter earnings Monday, and investors will be closely watching for signs of how much the Fed’s change in rate policy could hurt the banking business.”
Adjustable Rate Mortgage Market Update
Demand for new-issue hybrid ARMs slowed, which resulted in yield spreads to Treasurys widening 1 to 2 bps. ARMs outperformed their fixed-rate MBS counterparts, with yield spreads widening 4 bps on both the 15- and 30-year fixed. We continue to see relative value in ARMs as they remain 34 to 52 bps wider compared to levels in early December.Continue Reading
Agency Market Update
Agency bullet spreads tightened on the week and are back to levels not seen in a month. Spreads on callable agencies also tightened versus sovereign debt for most tenors and call structures.Continue Reading
Fixed Rate Mortgage Market Update
Current-production coupon MBS widened last week with the 15-year wider by 4 bps to 51 bps and the 30-year wider 4 bps to 74 bps. On a nominal basis, mortgage spreads have remained relatively unchanged on the year, as most other sectors have tightened.Continue Reading
Municipal Market Update
Municipals prices were steady on Monday, stronger on Tuesday, and mixed daily for the rest of the week. New issue offerings are forecasted to be just over $7.0B for the trading week.Continue Reading
SBA Market Update
The July fixed-rate DCPC auction drew strong investor interest as many portfolio managers are considering strategies to extend duration and call structures to protect against falling rates. Fixed-rate SBA DCPC pools and SBIC debentures remain attractive as they offer superior convexity profiles to most residential MBS alternatives.Continue Reading
CMO Market Update
CMO spreads to Treasury yields tightened 5 basis points in the 5-year space and 1-2 basis points for 3-year paper.Continue Reading