Sector Update

July 8, 2019

For the first time in two months, Treasury yields ended the week higher. Friday’s stronger-than-expected jobs report seemed to take the wind out of the sails of those expecting a Fed cut of 50bps. Correspondingly, shorter-maturity yields increased more than their longer counterparts causing the curve to flatten. To provide some reference, we can use a popular measure of curve steepness, the difference in yield between a 10-year and 2-year Treasury. A month ago the difference was 23bps, one week ago it was 25bps, and last week it ended at 18bps. It doesn’t appear the market completely believes a cut is off the table; however, the timing and/or magnitude of a cut is more in flux than recently. For a more in-depth look, Vining Sparks is hosting an “Economic Outlook Webinar” this Thursday at 10am Central; more information is below.

Economic Outlook Webinar – Why We Believe the Fed Will Cut Rates (7/11 @ 10am Central)

There has been a sea change in the interest rate environment because trade negotiations have been more protracted than expected and inflation has, again, undershot expectations.  We will discuss why we expect the Fed to cut rates this year, perhaps as early as July 31, but also detail why we believe the cut will be an “insurance” cut – not one associated with fear of recession. If you are interested in attending, register here.

Spread Commentary

• Agency Bullets were unchanged on the week.
• Agency Callables were unchanged save 1bp wider on long maturities.
• Corporates were 8-15bps tighter and are 20bps tighter over month-over-month.
• Munis tightened 7bps on the short end and 2bps on the long end.
• CMOs were unchanged on the week.
• MBS tightened in with 15-year 4bps tighter and 30-year 3bps 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 (June) | Monthly, 5^th business day

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

WSJ: Stocks Fall as Prospects of Fed Rate Cut Recede

“The moves have come amid an escalating trade war between the U.S. and China that is pushing the world’s largest central banks—including the Federal Reserve—toward a looser monetary-policy stance as they fight to support flagging growth.”

Bloomberg: Trump Jawbones Fed Yet Again, May Be Grooming Powell Successor

“Powell, who has said uncertainties in the U.S. outlook could call for lower rates, will give his read on the economy in two days of semiannual testimony before Congress starting Wednesday. He’ll almost certainly be asked about Trump’s regular criticism.”

Sector Updates