Sector Update

July 20, 2020

Treasury yields moved in an uneventful manner last week, falling 1-3 bps and at times bumping up against all-time lows. Even when looking intraweek, the 5-year Treasury traded in a 5 bps band and the 10-year traded in a 6 bps band. As measured by the MOVE Index, volatility in interest rates has certainly declined. The index hit a high of 163.7 on March 9th (a time of insane volatility if you recall) and has steadily fallen to a 2020 low of 45.7. There is probably more of this to expect if the Fed stays involved in markets (seems likely for the foreseeable future) and if/until a viable vaccine is widely available.

So far this morning, U.S. stock indices are mixed with the tech-heavy NASDAQ up 1.5%. The Treasury curve’s slope is 2 bp flatter from Friday’s close at 48 bps. From a yield perspective, Treasury bills are unchanged, 2- to 10-year maturities are unchanged to down 1-2 bps and long bonds are down 1-2 bps. This week, again, eyes will be glued to corporate earnings announcements, especially their forward guidance.

Food for Thought – SBA 7(a) Prepayment Speeds

Adapted from 7/15 SBA Prepay Commentary

As expected, July’s 7(a) prepayments were low, continuing to buck the trend of higher speeds usually seen during summer months. Though there was a slight increase over prepayments last month, both Equipment and Real-Estate loan pools are still close to last month’s historic lows. The Paycheck Protection Program (PPP), which as of July 14 has provided loans to 4.9 million businesses with an average loan size of $105,194, recently had its application deadline extended from June 30 to August 8. This extension should help further reduce the number of defaults, at least for the time being, keeping prepayment speeds similarly low in the following months.

Spread Commentary – Mixed Results

(Click links below for more details)

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


Freddie Mac: Mortgage Rates Fall Below Three Percent

“30-year fixed-rate mortgage averaged 2.98 percent with an average 0.7 point for the week ending July 16, 2020, down from 3.03 percent. A year ago at this time, the 30-year FRM averaged 3.81 percent. ”


WSJ: U.S. Stocks Waver, Starting Week on Muted Note

“Investors expect to get more visibility into the health and prospects of major American businesses as Coca-Cola, Lockheed Martin, United Airlines Holdings and others report earnings this week and offer their perspectives on operations for the rest of the year.”

Vining Sparks: Coronavirus Chartbooks

PDF/Mobile: Coronavirus Chartbook (PDF)

Regulatory Links

Federal Reserve: 7/17 FRB modifies MSLP to provide greater access to credit for nonprofit organizations

FDIC: 7/10 Consolidated Reports of Condition and Income for 2Q 2020 (FIL-69-2020)

FHFA: 7/9 FHFA Extends COVID-Related Loan Processing Flexibilities for FN/FH Through August

FDIC: 7/1 FFIEC Joint Statement on Managing the LIBOR Transition (FIL-68-2020)

Federal Reserve: 7/1 Minutes of the Federal Open Market Committee, June 9-10, 2020

FHFA: 6/29 FHFA Provides Tenant Protections

Federal Reserve: 6/25 Results of stress tests for 2020 and additional sensitivity analyses in light of coronavirus

Federal Reserve: 6/25 Agencies finalize amendments to swap margin rule

OCC: 6/22 Assessments: Interim Final Rule

LIBOR Transition Links

ARRC 7/8: ARRC Releases a Tool to Help Firms Move Internal Systems and Processes away from LIBOR

ARRC 6/30: Further Details Regarding Its Recommendation of Spread Adjustments for Cash Products

ARRC 6/30: Recommended Fallback Language for Private Student Loans

ARRC 6/30: Updated Recommended Hardwired Fallback Language for Syndicated Loans

ARRC 6/5: ARRC Welcomes CFPB’s Updated Consumer Handbook and Proposed Rule Facilitating Transition Away from LIBOR

ARRC 5/28: ARRC Welcomes FNMA and FHLMC’s LIBOR Transition Playbook

ARRC 5/27: ARRC Announces Best Practices for Completing Transition From LIBOR

ARRC 4/17: ARRC Announces Its Key Objectives for 2020

ARRC: 4/8:  ARRC Announces Recommendation of a Spread Adjustment Methodology for Cash Products

ARRC: Link to all ARRC Announcements

ARRC: Link to all ARRC Publications

ARRC: Link to ARRC Fallback Contract Language

Fannie Mae: LIBOR Transition Webpage

Freddie Mac: LIBOR Transition Webpage


SBA: 7/6  SBA and Treasury Announce Release of Paycheck Protection Program Loan Data

SBA: 6/19 SBA and Treasury Announce Enhanced Transparency Regarding the PPP

SBA: 6/17 SBA and Treasury Announce New EZ and Revised Full Forgiveness Applications for the PPP

SBA: SBA PPP Webpage

PPP Lending Facility (PPPLF)

Federal Reserve 7/10: Update on Outstanding Lending Facilities (PDF)

Federal Reserve 7/10: PPPLF Transaction-specific Disclosures (Excel)

Federal Reserve: PPPLF Webpage (includes Term Sheet + FAQs)

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