Sector Update

March 18, 2019



Last week, Treasury yields ended lower piling on to the prior week’s largest week-over-week decline of the year. Treasury maturities from 1-15 years closed at their lowest weekly yields for the year. The FOMC decision this Wednesday will be widely watched given the near even viewpoints on “one or none” rate hikes this year. Also of great interest, will be the report of any progress on how the Fed may view inflation targets moving forward and what that means from a monetary policy standpoint. This morning’s Market Today comments in more detail under the “Wednesday FOMC Decision” heading.

 

Spread Commentary



What We’re Reading

 

Vining Sparks: Market Today | Weekly Recap | MBS Prepay Commentary | SBA Prepay Commentary

 

WSJ: Fed Officials Wrestle With a ‘Dot Plot’ Dilemma

“The dots have caused problems when the economy is at an inflection point, such as during the current slowdown, because they reflect a baseline outlook—the rate path, if the economy behaves according to each individual’s expectations. The dots don’t show how officials gauge risks to their forecasts.”

 

WSJ: Wall Street Votes to Support Single Bond for Fannie, Freddie

“The vote by Wall Street’s largest trade group, the Securities Industry and Financial Markets Association, is the final hurdle for the proposed new security—which is expected to launch in June as part of a revamp to the $5 trillion market in bonds guaranteed by the mortgage-finance firms.”

 

Bloomberg: How to Win Your Office NCAA Pool: Use Game Theory, Pick Duke

“The odds against perfection are huge, with 9.2 quintillion permutations. With just 7 quintillion grains of sand on Earth, you could have a better shot at finding the one painted Carolina Blue than picking the winner of all 63 tournament games typically included on a bracket.”



Sector Updates


Adjustable Rate Mortgage Market Update

There was increased demand for hybrid ARMs last week, which caused yield spreads to Treasuries to tighten 1 basis point.  The tightening move came after spreads were largely unchanged for the last month, lagging the performance of fixed-rate MBS, which have tightened at a much more aggressive rate.

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Agency Market Update

The Treasury market continued its recent rally and yields ended the week near the lowest levels of the year.  The intermediate portion of the yield curve remains inverted, and right now the spread between 2- and 5-year Treasuries is -4 basis points.

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Fixed Rate Mortgage Market Update

Yield spreads on current coupon MBS to Treasuries grinded tighter last week with 15-year tightening 4 bps to 47 bps, while 30-year tightened 1 bp to 72 bps.  Despite the modest level of tightening, 30-year mortgage spreads are above their 1, 3, and 5-year averages.

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Municipal Market Update

Municipal prices were steady on Monday, mixed on Tuesday, steady again on Wednesday and Thursday and mixed again on Friday. Issuance for the week is forecasted to be $2.4B, which is well below last week’s revised level of $4.8B in issuance.

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SBA Market Update

SBA activity was focused on the semi-annual SBIC auction last week, which tightened 4bps from September 2018.  The auction priced to yield a 51bp spread over 10-year treasuries, which is 8bps wider than the average spread over the last two years.

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CMO Market Update

CMO spreads widened 2 basis points for the second consecutive week. In the 5-10 year space, spreads have widened 8-12 basis points since the start of the year, extending highs since the beginning of 2018.

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