Sector Update

March 4, 2019

The Treasury curve steepened last week with yields up across the curve but with longer maturities seeing more of the increase. If you needed proof that yields are highly data dependent, last week is a good case study.

This Friday is another big day for economic data with housing starts and payroll numbers being reported. Continuing to weigh on markets are ongoing trade negotiations with China. It was reported yesterday afternoon that the U.S. and China “are in the final stage of completing a trade deal”.


Spread Commentary

What We’re Reading

WSJ: U.S., China Close In on Trade Deal

WSJ: Hot ETF Play of 2019 Is Betting on Home Loans

WSJ: The Problem for Small-Town Banks: People Want High-Tech Services

Vining Sparks: Market Today

Vining Sparks: Weekly Recap

Adjustable Rate Mortgage Market Update

Yield spreads on hybrid ARMs to Treasuries tightened approximately 1 to 2 basis points last week, which was the result of a modest bond market sell-off that generally sent yields higher across the curve.  Hybrid ARM spreads tightened in the month of February, lagging the performance of fixed-rate MBS, which have tightened at a slightly more aggressive rate.

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Agency Market Update

Both agency bullets and callable agencies mostly tightened in versus Treasuries.  Over the past 2 months, 3-year bullet spreads have been halved and 5-year agency bullets have tightened in to 11 basis points (compared to 17 basis points in early January).

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Fixed Rate Mortgage Market Update

Yield spreads on current coupon MBS to Treasuries were mixed last week with 15-year ending the week unchanged at 48 bps, while 30-year widened 2 bps to 75 bps. Higher coupons tightened by 3 to 5 bps, likely a reaction to the curve steepening.

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Municipal Market Update

Issuance this week is forecasted to be $5.84B, which is above last week’s revised level of $4.71B in issuance. The new issue calendar coupled with bid lists should provide market participants with opportunities to fill their needs, as municipals remain in demand.

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SBA Market Update

The March fixed-rate DCPC auction is scheduled for later this week and includes 10, 20 and 25yr maturities.  Fixed-rate DCPC pools and SBIC fixed-rate debentures remain attractive as they offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.

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CMO Market Update

Fixed-rate coupons dominated, floaters returned to modest percentage of activity. The trend of shorter duration continues this month, down from 2.9 to 2.3 over past 5 months.

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