Sector Update

June 7, 2021

Treasury yields ended last week mixed with intermediate and longer maturities lower and shorter maturities either unchanged or slightly higher. It was an interesting trip though. Through Wednesday yields were +/- 1 bp from the prior week’s close. On Thursday, yields on 3+ year maturities increased 3-5 bps on strong ADP private payroll estimates, encouraging unemployment claims reports, and a record Services PMI report that was revised even higher. Friday was a complete reversal though as May payroll gains disappointed, for the second month in a row, and the revisions to April figures were measly. Markets perceived this as a threat to an earlier tapering timeline.

Treasury Secretary Yellen said last evening in a Bloomberg News interview, “We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade” and in regards to whether she thinks the Fed can handle a sustained increase in inflation, “I don’t believe they’re going to screw it up.”

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Today – Yields slightly higher, equities mixed

Yields end week mixed – Intermediate and Longer down, Shorter unchanged to slightly higher

10- and 5-year yields remain rangebound – up 64 and 42 bps YTD respectively

Yield Curve Shape – 2s-5s and 2s-10s still relatively steep, remain within recent ranges

Food for Thought – June MBS prepay speeds released Friday evening, broad declines for second straight month

W2D means “worst-to-deliver” – these speeds do not include collateral such as loan balance, New York, 100% Investor, etc.

Sector Commentary (click on links for more in-depth look)

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 (May) | Monthly, 10th business day

Bloomberg: Yellen Says Higher Interest Rates Would Be ‘Plus’ for U.S., Fed

“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” the former Federal Reserve chair said, adding that “we want them to go back to” a normal interest rate environment, “and if this helps a little bit to alleviate things then that’s not a bad thing — that’s a good thing.”

WSJ: The Fed’s Inflation View Is All About That Base

“The problem is when something screwy happens a year earlier. The base from which a year-over-year comparison is calculated becomes distorted. If a company takes a hit in one year and then gets back to normal the next, it can look like its profits are soaring when in fact they are just getting back on track.”

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