June 12, 2017
Small yield increases occurred across most of the bond market last week. All terms on the Treasury curve finished higher with the largest increase, 7bp, occurring at the three-year maturity. Yields moved higher by small amounts each day except Tuesday. While Treasury yields bounced off their year-to-date low levels from the prior week, the curve retained its overall shape, the flattest since last October as measured by the 2yr/10yr yield spread.
Not all sectors behaved like Treasuries last week. Most notably, the municipal sector moved in the opposite direction and finished with slightly lower yields all across the curve. Yield increases in the balance of other bond market sectors were generally smaller than Treasuries, with the most pronounced tightening occurring in sectors with credit exposure as opposed to option risk/convexity.
The pace of activity last week exceeded most of the prior few weeks. While Monday started out quite slowly, a greater number of bid lists began circulating as the week progressed, and this swap related activity combined with redeployment of recent pay downs resulted in volumes of business with portfolio managers somewhere between average and brisk.
Friday’s closing yield of 1.77% was 12bp below the daily closing average year-to-date and was 19bp above the average for the last year of trading. The ten-year Treasury finished the week at 2.20%, 17bp below the year-to-date average for the daily closing yield and 14bp above the average daily close for the last year.
Adjustable Rate Mortgage Market Update
Yield spreads for new-issue hybrid ARMs to Treasuries were 2 to 3 bps wider on the week, as the market adjusted to absorb the new supply from recent issuance and secondary selling. As previously mentioned, we continue to favor longer reset structures.Continue Reading
Agency Market Update
Agency yields increased 2 to 9 bps last week, with larger movements occurring on longer maturities. On the week, two-year Agency yields increased 6 bps to 1.41%, 5-year Agency yields increased 7 bps to 1.88%, and yields on 10-year Agencies climbed by 9 bps to 2.61%.Continue Reading
Fixed Rate Mortgage Market Update
Activity improved last week in both the MBS and CMO sectors as bonds sold off on Thursday and Friday after Comey’s Senate testimony. Yield spreads tightened a couple of basis points and mortgage rates fell 3-5bps to the lowest levels this year.Continue Reading
Municipal Market Update
Municipal bond funds recorded inflows for the week, as weekly reporting funds experienced $985.092MM of inflows in the latest reporting week, after experiencing outflows of $50.837MM the week prior. The four-week moving average was a positive $438.868MM, after being a positive $344.028MM the week prior.Continue Reading
SBA Market Update
Demand for floating-rate SBAs was steady last week, as investors focus on a likely continued increase in short-term rates. Fixed-rate SBA activity slowed last week, although portfolio managers continue to add 20-year DCPCs to their portfolios in limited quantities.Continue Reading