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.
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.
- 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, 5th business day
SBA Prepay Commentary (June) | Monthly, 10th business day
“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.”
“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.”
Adjustable Rate Mortgage Market Update
ARMs outperformed their fixed-rate MBS counterparts, with yield spreads tightening 4 bps on the 15-year fixed and 3 bps on the 30-year fixed. Despite ARM spreads tightening last week, we continue to see relative value in ARMs as they remain 32 to 50 bps wider compared to levels in early December.Continue Reading
Agency Market Update
Agency bullet spreads were unchanged on the week and remain at the wider end of the recent trading range. Spreads on callable agencies were basically unchanged last week and are also trading on the wider end of the recent trading range.Continue Reading
Fixed Rate Mortgage Market Update
Current-production coupon MBS outperformed Treasurys last week as rates backed up. 15-year tightened 4 bps to 47 bps, while 30-year tightened 3 bps to 70 bps. Yield spreads remain at some of the widest levels observed in recent years.Continue Reading
Municipal Market Update
Municipals prices were mixed on Monday, stronger on Tuesday and Wednesday, and weaker on Friday. New issue offerings are forecasted to be just under $7.0B for the trading week.Continue Reading
SBA Market Update
Yield spreads on fixed-rate DCPC Pools versus Treasurys widened 3 bps on the 25-year term and 5 bps on the 20-year term. Many floating-rate bond options currently offer similar and even higher yields than longer-duration fixed-rate bonds, driven by an inverted yield curve between 3-month and 10-year Treasurys.Continue Reading
CMO Market Update
CMO spreads to Treasurys are unchanged over the last two weeks.Continue Reading