Sector Update

March 27, 2017

Weekly Sector Updates


Treasury yields declined for a second consecutive week with maturities beyond two years now trading below their year-to-date averages. The five- through ten-year portion of the curve finished the week with yields 8bp to 10bp below where they started, matching their declines form the prior week. Even the short end of the curve participated last week, with two-year Treasury yields finishing 5bp lower.

Trading volumes rebounded from the prior week, though they still remained well below the typical pace of recent months. Supply seemed to be a limiting factor, as new issues were mostly met with enthusiasm. Relatively light issuance volumes continues to characterize most sectors, compounded in the mortgage sector by the significant portion of new issuance the Fed purchases to replace monthly paydowns. Issuance should pick up modestly this week for most sectors. Meanwhile, the pace of restructurings and repositioning might remain slow, as markets have moved back toward the middle of recent trading ranges.

Yields in most other bond market sectors declined by slightly smaller amounts than Treasuries. Yield spreads between mortgage-related securities and Treasuries barely widened, 1bp to 2bp. At the other end of the spectrum municipal debt spreads widened the most of any sector, though no maturity moved more than 5bp wider on the week.

The 1.91% yield at which five-year Treasuries are trading this morning is 3bp below the year-to-date daily closing average and 44bp above the average for the last year. Trading at 2.38%, the yield for the ten-year Treasury is 7bp below the year-to-date average and 42bp above the average daily close for the last year.


Adjustable Rate Mortgage Market Update

Yield spreads for new-issue hybrid ARMs to Treasuries were stable for the week, despite a bond market rally that led to Treasury yields falling across the curve. Tight nominal spreads continue to reflect strong demand and negative net issuance.

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Agency Market Update

Agency yields declined across the curve for the second consecutive week. Two-year Agency yields moved lower by 7 bps to 1.33%, 5-year Agency yields decreased 10 bps to 2.04%, and yields on 10-year Agencies declined 12 bps to 2.80%.

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Fixed Rate Mortgage Market Update

Trading activity across the MBS and CMO sectors improved last week, but remains light compared to activity over the last month. The mortgage market continues to trade in a tight range with minimal changes in yield spreads.

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Municipal Market Update

Municipal bond funds recorded inflows, as weekly reporting funds experienced $173.473MM in inflows in the latest reporting week, after experiencing outflows of $118.061MM the week prior. The four-week moving average remained negative at $90.990MM, after being a negative $97.024MM the week prior. All other funds posted mixed results and we note the high yield funds reported inflows for a fourth week.

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SBA Market Update

The combination of recent Fed actions and a host of new issuance yielded high levels of activity in floating-rate SBA pools last week. In addition, fixed-rate SBA investments also saw renewed interest, as the semi-annual SBIC auction was well received by investors last week. Loan trading activity was steady last week, as depositories focused on closing out the quarter strong.

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