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)
- Government/Agency Space
- Bullets were unchanged on the week, remain wider YTD.
- Callables were unchanged save 15-year maturities which were 2 bps wider.
- Agency CMBS, MBS, and ARMs
- BQ Munis, short-end wider 3 bps, longer maturities 4-12 bps tighter.
- GM Munis, 5-year 3 bps tighter, 10-year 8 bps wider, 15-year 5 bps tighter
- Taxable Munis wider by 2-7 bps in a flatter fashion.
- Corporates, from shorter to longer maturities, were 3-6 bps tighter.
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. ”
“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)
Federal Reserve: 7/17 FRB modifies MSLP to provide greater access to credit for nonprofit organizations
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 Agencies finalize amendments to swap margin rule
OCC: 6/22 Assessments: Interim Final Rule
LIBOR Transition Links
ARRC 4/17: ARRC Announces Its Key Objectives for 2020
Fannie Mae: LIBOR Transition Webpage
Freddie Mac: LIBOR Transition Webpage
SBA PPP Links
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)