Sector Update

March 30, 2020



I suspect that many in the banking and financial services industry, myself included, feel like they’re trying to drink water from a firehose. The sheer amount of news, announcements, and legislation being passed, not to mention the reality of what’s going on around all of us is unprecedented in recent times. Below are a few links to resources I have found helpful. The list will grow. In general, my take is there are lots of plans in place, but details are still lacking. To be fair, I think everyone is doing the best they can. Last week the big news was fiscal in nature, as Congress passed and the President signed the CARES Act into law.


ICBA: Detailing the Community Bank Provisions of the CARES Act

SBA: Coronavirus (COVID-19): Small Business Guidance & Loan Resources

FDIC: The FDIC Announces a 30-Day Grace Period for the Call Report for the First Quarter of 2020


April 30th is the new benchmark date. President Trump announced Sunday afternoon that national social-distancing guidelines are extended through the end of April. However, many Americans are getting a real-time civics lesson as state and local governments enjoy wide latitude in what they can do themselves. For example, Florida recently introduced checkpoints to screen travelers from areas with “substantial community spread”.

So far today, stocks are extending gains on the back of last week’s historical moves upward and Treasury yields are stable, relatively speaking, from Friday’s close.



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Tuesday (4/7): 2020 Quarterly Economic Outlook Webinar


Food for Thought

For the first time in a couple weeks, Monday morning hasn’t come with a major Fed announcement. Two weeks ago, it was an emergency 100 bps rate-cut along with the announcement of a $700 Billon dollar bond buying programming. Last week, Monday morning brought news that the previously-announced bond-buying programs were now uncapped along with the introduction of new liquidity facilities. We wrote last week that while the goal is to increase liquidity in the markets the net effect will be to also reduce spreads. So far, considering the spread snapshot near the end of this publication, I would say they have been successful. Spreads on MBS, for example, were almost cut in half last week and GM (General Market) municipal bonds saw drastic spread declines as well.


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

 

WSJ: As Coronavirus Spreads, Community Banks Watch for Fallout

“The economic fallout of the novel coronavirus poses a new challenge for small banks across the country. Most of America’s banks are like Fisher National—woven into the local economy and a key source of credit for small businesses. As the downturn squeezes more industries, community banks must balance helping these businesses with protecting their own bottom lines.”


CNBC: JNJ says human Testing of its coronavirus vaccine to begin by September

“J&J’s lead vaccine candidate will enter a phase 1 human clinical study by September, the company said, and clinical data on its effects is expected before the end of the year. If the vaccine works well, the company said it could be available for emergency use in early 2021.”


WSJ: For Small Businesses, It’s a Virus Chain Reaction

“With fewer dollars coming in, small businesses have hard decisions to make about whether to pay rent, workers or bills from their supply chain, said William Dunkelberg, chief economist for the National Federation of Independent Business. ‘Somebody is going to get the short end of it,’ he said. ‘That will work its way back through the economy.’”


Vining Sparks: Coronavirus Chartbooks

PowerPoint: Coronavirus Chartbook (PWPT)  

PDF/Mobile: Coronavirus Chartbook (PDF/Mobile)



Sector Updates


Adjustable Rate Mortgage Market Update

With a risk-on tone later in the week, yield spreads on 5/1, 7/1, and 10/1 ARM cohorts tightened 5, 2, and 5 basis points, respectively.  Last week, the Fed committed to purchase mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions.”  As a result, 15- and 30-year fixed-rate mortgages tightened 69 and 65 basis points, respectively, and outperformed their adjustable-rate counterparts.

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Agency Market Update

After steadily widening since the end of January, both agency bullets and callables mostly tightened back in last week.  Bullets were most affected in the 2- to 3-year part of the curve, tightening by 8 to 9 basis points, while 5- to 10-year bullets tightened by 3 to 5 basis points.  Despite last week’s tightening, however, bullets remain wider year-to-date by roughly 20 to 25 basis points for 2- to 10-year finals.  The same is true for callables, which tightened back in but remain 30+ basis points wider than at year-end.  Of course, absolute yields are significantly lower.

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Fixed Rate Mortgage Market Update

Nominal spreads on current-coupon MBS compared to Treasurys were compressed on a week-over-week basis, as 15-year decreased 69 bps to 72 bps, and spreads on 30-year declined 65 bps to 88 bps. 

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Municipal Market Update

Municipal prices started the week steady, and then strengthened daily for the rest of the week. New-issue offerings are forecasted to be just $12.9B for the trading week.

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SBA Market Update

The U.S. Senate and the House of Representatives passed the CARES Act and President Trump signed it into law last week.  There are provisions within the Act focused on small business lending and USDA farm lending programs. Current yield spreads on newer and seasoned SBICs and DCPCs have widened over the last several weeks and are pricing at approximately 110 and 90 bps, respectively, or wider to Treasurys.

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CMO Market Update

Last week, the Fed included CMBS in its string of purchasing programs, with plans for more intervention in that market this week. As of now, the Fed is not buying Agency CMOs. However, eventually their purchases of 30-year MBS collateral should impact new issuance in the CMO market.

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