Sector Update

July 27, 2020

Treasury yields moved, again, in a mostly uneventful manner last week, with 10-year and shorter maturities unchanged to 4 bps lower. Longer maturities had a more eventful week as their yields declined by 8-10 bps. It really is anyone’s guess why this is happening, but lower inflation expectations coupled with a “lower for longer” outlook probably play into this. This grind to lower yields has 2-7 year maturities at/near record lows. In terms of interest rate volatility, it has certainly declined and continues to grind tighter. The MOVE index hit a high of 163.7 on March 9^th and has steadily fallen to a 2020 low of 42.5.

So far this morning, U.S. stock indices are up 0.2 to 0.5 percent. The Treasury curve’s slope is 1 bp flatter from Friday’s close of 44 bps. From a yield perspective, Treasury bills are unchanged to 1 bp lower, 2- to 10-year maturities are unchanged to down 1 bp, and long bonds are down 1 bp. This week, again, eyes will be glued to corporate earnings announcements and a number of economic releases including consumer confidence, FOMC rate decision and presser on Wednesday, and readings of personal income and spending from June. I shouldn’t ignore the 2Q GDP initial estimate due out on Thursday, but everyone already knows it’s going to be awful (current estimate is -35%) and likely to set an unenviable record. For a frame of reference, the lowest print during the financial crisis was -8.4% in Q4 2008.

Spread Commentary – Mixed Results

(Click links below for more details)

Government/Agency Space
- Bullets were unchanged on the week, remain wider YTD.
- Callables were also unchanged, save 10/1, all wider YTD.

Agency CMBS, MBS, and ARMs
- SBA DCPCs tightened 1 bp, have tightened 12 bps over the last month.
- Agency MBS were relatively unchanged, +/- 1 bp from start of year.
- Agency CMOs were unchanged after tightening 7-8 bps over the past month.

Municipals
- BQ Munis, short-end tighter 6 bps, longer maturities unchanged to 3 bps tighter.
- GM Munis, 5-year unchanged, 10-year 4 bps wider, 15-year 6 bps wider.
- Taxable Munis, 5-year 7 bps tighter, 10-year 1 bps tighter, 15-year 4 bps wider.

Corporates
- Corporates, from shorter to longer maturities, were 4-6 bps tighter.
  - Over the past month, have tightened 12-26 bps.

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, 5^th business day

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

Freddie Mac: Mortgage Rates Rise for the First Time in Weeks

“30-year fixed-rate mortgage averaged 3.01 percent with an average 0.8 point for the week ending July 23, 2020, up slightly from 2.98 percent. A year ago at this time, the 30-year FRM averaged 3.75 percent.”

WSJ: Jumbo Mortgage Rates Are No Longer the Cheapest

“The average rate on a 30-year jumbo mortgage was 3.77% in mid-July, more than 0.4 percentage point above the average rate on smaller, conforming loans, according to Bankrate.com, a personal-finance website. From mid-2015 until this spring, jumbo rates had been consistently lower than or equal to the rates on conforming loans.”

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

LIBOR Transition Links