June 24, 2019
For the second week in a row, Treasury yields moved in a “Bull Steep” fashion, resulting in a steeper yield curve. Shorter maturity yields declined more than their longer counterparts. 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 15bps, one week ago it was 24bps, and last week it ended at 29bps. As market sentiment has sharply turned towards Fed easing, we have also included a “General Playbook for Fed Easing” below.
It’s worth checking out the WSJ article here (and below) titled “Bond-Yield Plunge Confounds the World’s Economy”. There is a great graphic depicting the breathtaking number of sovereign debt maturities trading at negative yields. If you have any issues accessing the article email me (email@example.com ) and I’ll share it with you.
- Agency Bullets widened 1bp.
- Agency Callables were 1-2bps wider.
- Corporates were 6-12bps tighter.
- Munis widened 4bps on the short end and 1bp on the long end.
- CMOs were 2-5bps wider on the short end.
- MBS gave back last week’s widening (4 and 11bps respectively) and then some with 15-year 7bps tighter and the 30-year 12bps 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 proximate causes of the bond-yield decline are numerous, interrelated and hard to quantify. The Chinese economy has been slowing, though fears of a crisis there haven’t played out. Expectations of future inflation in developed countries have been plummeting, yet real measures of price change have declined only a little. Tariff threats out of Washington are throwing sand in the gears of global trade, but there are no signs of an outright collapse.”
Adjustable Rate Mortgage Market Update
ARMs lagged their fixed-rate MBS counterparts, with yield spreads tightening 7 bps on the 15-year fixed and 12 bps on the 30-year fixed. We continue to see relative value in ARMs as they remain 27 to 43 bps wider compared to levels in early December.Continue Reading
Agency Market Update
Treasury and agency yields continued to move lower last week. Yields on 3- and 5-year agency bullets ended the week down 3 to 5 basis points and now stand at 1.81% and 1.91%, respectively. The yield curve between 2- and 10-year Treasurys steepened to roughly 29 basis points, its steepest slope since November.Continue Reading
Fixed Rate Mortgage Market Update
Current production MBS outperformed Treasurys last week as yield spreads tightened. 15-year tightened 7 bps to 47 bps, while 30-year tightened 12 bps to 67 bps. Yield spreads remain at some of the cheapest spread levels observed in recent years, despite the tightening last week.Continue Reading
Municipal Market Update
Municipals prices started the week steady, were mixed Tuesday, steady again on Wednesday, stronger on Thursday and steady on Friday. New issue offerings are forecasted to be $5.59B for the trading week.Continue Reading
SBA Market Update
Fixed-rate SBA DCPC pools and SBIC debentures remain attractive as they offer superior convexity profiles to most residential MBS alternatives. SBA floating pools with uncapped quarterly resets indexed to Prime offer attractive yield opportunities versus interest bearing cash, fed funds and 3-month T-Bills.Continue Reading
CMO Market Update
Last week, CMO spreads to Treasurys widened up to 5 basis points for 2-3 year paper, but were unchanged for intermediate maturities.Continue Reading