June 29, 2020
Treasury yields dropped last week, returning to levels last seen at the end of May. As concern grew over accelerating growth in coronavirus cases across the nation and parts of the world, it makes sense, intuitively at least, for yields to retreat towards levels prior to a broad sense of optimism in a quick(ish) economic recovery. It was certainly no secret that areas opening back up for business would experience an increase in coronavirus cases, but to see certain states, namely Florida and Texas, rolling back measures certainly gives us something to think about in terms of how quickly (or not) the economy can reopen. Not all the news is negative though, it continues to surprise me how resilient the housing market has been to date. Just this morning, U.S. pending home sales posted a record gain of 44.3%.
Spreads were mixed last week. I would characterize movements as unchanged to tighter in the Government/Agency space and wider in credit (corporates and munis).
So far this morning, U.S. stock indices have recouped approximately one-third to one-half of their losses last week. The Treasury curve’s slope is unchanged at 47 bps. From a yield perspective, Treasury bills are unchanged, 2- to 10-year maturities are 1-2 bps lower and long bonds are 1-2 bps higher.
Adjustable Rate Mortgage Market Update
On the week, yield spreads on Ginnie and conventional ARMs were unchanged while fixed-rate mortgages tightened 3 to 6 basis points. Mortgages have struggled to keep up with other risk assets recently due to heavy TBA mortgage supply during the peak summer home buying season.
Agency Market Update
Agency bullet spreads widened marginally last week but only in the 2- to 3-year part of the curve, reversing the tightening moves for those maturities from the previous week. Agency callable spreads were little changed on the front end of the curve while 5- to 10-year maturities continued to tighten by several basis points.
Fixed Rate Mortgage Market Update
Nominal spreads for production MBS to Treasurys were slightly tighter on a week-over-week basis. 15-year tightened 6 bps to 73 bps and 30-year tightened 3 bps to 111 bps. The higher coupons didn’t fare as well as investors continue to grapple over potential prepayments.
Municipal Market Update
Municipal prices were steady on Monday and Tuesday, were mixed on Wednesday, and steady again on Thursday and Friday. New-issue offerings are forecasted to be $7.2B for the trading week.
SBA Market Update
Current yield spreads in SBA DCPCs were unchanged last week at 70 bps over Treasurys. Spreads have tightened 25 bps over the last month, but spreads are 8 and 7 bps wider YTD and YoY, respectively.
CMO Market Update
With month and quarter-end tomorrow, I’d like to provide some context for recent spread movements in the CMO space. Week-over-week spreads were unchanged and month-over-month they tightened slightly, around 6 to 8 basis points. But, when looking at a year-to-date timeframe, CMO spreads are still wider for the year, anywhere from 10 to 20 basis points depending on maturity and structure.
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 effort to modernize the FDIC’s systems predates the coronavirus pandemic, yet the outbreak has demonstrated bank reporting can be out of date. For instance, the agency wasn’t able to brief the public on the first-quarter health of the industry until earlier this month. And that briefing didn’t include data past March, relatively early in the pandemic-triggered downturn.”
Vining Sparks: Coronavirus Chartbooks
PDF/Mobile: Coronavirus Chartbook (PDF)
SBA PPP Links
PPP Lending Facility (PPPLF)
Federal Reserve 6/10: Update on Outstanding Lending Facilities (PDF)
Federal Reserve 6/10: PPPLF Transaction-specific Disclosures (Excel)
Federal Reserve: PPPLF Webpage (includes Term Sheet + FAQs)
FHFA: 6/29 FHFA Provides Tenant Protections
Federal Reserve: 6/25 Agencies finalize amendments to swap margin rule
OCC: 6/22 Assessments: Interim Final Rule
Federal Reserve: 6/8 Expands MSLP to allow more small and medium-sized businesses to receive support
Federal Reserve: 6/3 Announces expansion in number and type of entities eligible to directly use its MLF
LIBOR Transition Links
ARRC 4/17: ARRC Announces Its Key Objectives for 2020
Fannie Mae: LIBOR Transition Webpage
Freddie Mac: LIBOR Transition Webpage