June 3, 2019
What a difference two weeks can make! In the May 20th publication, we wrote, “As long as trade tensions remain high, it is reasonable to expect continued pressure on Treasury yields.” Tensions not only remained high, but grew in regards to China. Tensions also broadened as President Trump announced, last Thursday, the intent to levy tariffs on Mexico. Last week alone, Treasury yields declined 18-22 bps on maturities 2-years and longer and for the month of May, yields declined approximately 40 bps. It stands to reason that if yields can drop this fast they could similarly rebound, right? At this moment, I am doubtful. Threatening tariffs on Mexico raised the general level of uncertainty in markets and I think it will take actions of equal or greater magnitude to push yields meaningfully higher.
- Agency Bullets were 1-2 bps wider on the week.
- Agency Callables were 4-5bps wider.
- Corporates were 3bps wider.
- Munis widened 6-15bps.
- CMOs, 5- and 10-year, were 5bps wider.
- MBS were slightly tighter on the week, with the 15-year 2bps tighter and the 20-year 5bps 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 (May) | Monthly, 5th business day
SBA Prepay Commentary (May) | Monthly, 10th business day
“China and Mexico both signaled a willingness to negotiate with Washington over escalating trade issues, while the Trump administration took to the airwaves to defend its use of tariffs to gain concessions from trading partners.”
“U.S. government debt yields fell on Monday, continuing their rout that started last month on concern the trade war is slowing the economy. The 10-year yield hit a new 20-month low.”
Adjustable Rate Mortgage Market Update
ARMs lagged their fixed-rate MBS counterparts, with yield spreads tightening 2 bps on the 15-year fixed and 5 bps on the 30-year fixed. We continue to see relative value in ARMs as they remain 12 to 29 bps wider compared to levels in early December.Continue Reading
Agency Market Update
Yields on 3-year bullets ended the week down 22 basis points at 1.95%, and 5-year bullets finished the week 19 basis points lower at 2.01%.Continue Reading
Fixed Rate Mortgage Market Update
The global flight to safety continued to weigh on yields last week. Yield spreads on current production MBS to Treasurys tightened, with 15-year tightening 2 bp to 50 bps, while 30-year tightened 5bps to 72 bps.Continue Reading
Municipal Market Update
Municipals prices started the week mixed, were stronger on Wednesday, mixed again on Thursday and stronger again on Friday. New issue offerings are forecasted to be $6.99B for the trading week.Continue Reading
SBA Market Update
The June fixed-rate DCPC auction is scheduled for later this week (June 6th) and includes 20- and 25-year maturities. Fixed-rate SBA DCPC pools and SBIC debentures remain attractive as they offer superior convexity profiles to most residential MBS alternatives.Continue Reading
CMO Market Update
CMO spreads to Treasurys widened approximately 5 basis points last week, continuing a methodical trend we have seen since February.Continue Reading