Sector Update

March 15, 2021

Last week was another one welcomed by Depositories flush with liquidity, and that doesn’t even count the current round of stimulus payments starting to roll in. For the sixth-straight week, the Treasury curve ended steeper with intermediate and longer yields increasing. There are a series of charts below with the weekly moves along with cumulative changes from the start of 2020.

A Few Points to Start Your Week

I want to quickly point you to three things. First, we have two webinars this week on balance sheet strategies while emerging from a pandemic, see “Upcoming Webinars” below. Second, I’d like to point you towards the Interest Rate Products commentary on a way to cut funding costs with the running increase in yields and steepening of the curve. Lastly, in the Food for Thought section, I looked back to this time last year. Wow.

When Will Mortgage Prepays Slow Down?

That’s a great question and one we are hearing more frequently. Mortgage rates have certainly moved up, the 30-year moved +32 bps over the last two weeks to 3.05 according to the Freddie Mac PMMS. As we have discussed in the Prepay Commentary it takes time for these to work through though.

Don’t Fear the Steeper – Week 1 2 3 4 5 6

Last week was the sixth consecutive week the yield curve steepened as intermediate and longer-term yields continued their increase. I have said it before but, the broad increase in yields may have some effects on current holdings but in terms of moving forward it should be positive. This sentiment is reflected, partly, in the NASDAQ CBNK Index posting a 6.2% increase last week. For those keeping score at home, the index is up 31% since February 1st. Depository activity was robust again last week as large amounts of liquidity still exists in the banking system along with the newest round of stimulus payments already hitting some balance sheets as early as Friday (3/12).

Upcoming Webinars – (Registration opens 2 weeks prior, 1 hour CPE available)

Bank 3/16: Balance Sheet Strategies Emerging from a Pandemic

Credit Union 3/18: Balance Sheet Strategies Emerging from a Pandemic

Bank 4/13: Libor Update, Are you Ready?

Credit Union 4/15: Libor Update, Are you Ready?


Treasury yields are lower from Friday’s close and the curve is slightly flatter. Broad U.S. equity indices are down, but the NASDAQ is starting the week slightly positive. The NASDAQ Bank Index (CBNK) is off 2.1% after a 6.2% increase last week. I wouldn’t feel too bad though, the CBNK is up 34% year-to-date.

Longer Maturities Moved Higher, Joined by Intermediate, Short-End Stuck, Curve Steepened

10-year yield within 26 bps of where it started 2020, 5-year still off by 84 bps

Yield Curve Shape – Don’t Fear the Steeper

Food for Thought – Looking Back 1-Year Ago This Week

Below is a table from this publication a year-ago this week. At the risk of understating, this was a time of great volatility as lockdowns had started in some areas but weren’t widely spread. The CDC was only recommending cancelling/postponing events with 50+ people for 8 weeks. Over the weekend, the Federal Reserve made an emergency announcement cutting the overnight rate 100 bps to its current range of 0.0% to 0.25%. The IOER (interest on excess reserves) rate was also cut from 1.10% to 0.10%. It was 1.60% just nine trading sessions before the 100 bps cut. Stocks opened the morning of the 16th and almost immediately hit the 7% circuit breaker, the third time in six trading sessions.

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 (March) | Monthly, 5th business day

SBA Prepay Commentary (March) | Monthly, 10th business day

Bloomberg: Yellen Says U.S. Inflation Risk Remains Small, ‘Manageable’

“ ‘Is there a risk of inflation? I think there’s a small risk and I think it’s manageable,’ Yellen said on ABC’s “This Week” on Sunday. Some prices that fell last year when the Covid-19 pandemic spread across the U.S. will recover, ‘but that’s a temporary movement in prices,’ she said.”

WSJ: White House Weighs How to Pay for Long-Term Economic Program

“The challenges are twofold. Officials face a decision over how much of the bill to pay for with tax increases and which policies to finance with more borrowing. In a narrowly divided Congress, they must also craft a bill that can win support from nearly every Democrat. The decision will help determine how much of President Biden’s Build Back Better economic agenda he can advance in his first year in office.”

Vining Sparks: Coronavirus Chartbook

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