Sector Update

March 7, 2022

A few points to start your week

See this morning’s Market Today for a quick recap of last week
Yields ended the week drastically lower and the curve much flatter
- Volatility in markets remains elevated as inflation and foreign affairs grapple for attention
- Yields up 1-4 bps this morning, momentum still feels poised towards lower yields
Helping blunt lower yields, spreads much wider in many sectors looking back 12-months (see Spread Snapshot below)
- Of particular interest, longer MBS spreads and Tax-Exempt Munis
We have two webinars this week, click to register Bank | Credit Union

Individual Sector Updates – Click to Access

Largest Weekly yield declines over the past 5 years

Longer MBS spreads look wide by a variety of measures, even when including COVID-19 volatility

Today – Equities fall, yields 1-4 bps higher, volatility continues to shake markets

Equities continued downward trend last week

Upcoming Webinars – (1 hour CPE available, registration opens 2 weeks prior to each webinar)

1/11: 1st Quarter Economic Outlook Webinar ( slides | webinar replay )

2/22 Bank: Positioning the Investment Portfolio for Performance ( slides | webinar replay )

2/24 Credit Union: Positioning the Investment Portfolio for Performance ( slides | webinar replay )

3/8 Bank: Balance Sheet Strategies in an Expected Tightening Cycle (open for registration)

3/10 Credit Union: Balance Sheet Strategies in an Expected Tightening Cycle (open for registration)

4/12 Bank: Interest Rate Swaps, Not Just for Hedging

4/14 Credit Union: Interest Rate Swaps, Not Just for Hedging

Treasury yields still around pre-pandemic levels except for 10-Year which is apprx. 20bps lower

Yield on 10-year 15-20 bps below pre-pandemic levels this morning, 5-year right at even

Yield on 3- and 2-year +/- 5 bps from pre-pandemic levels

Curve Shape – 2s5s 14 bps flatter last week, 39 bps flatter YTD through this morning

Curve Shape – 2s10s moves 14 bps flatter last week, 55 bps flatter YTD through this morning

March MBS factors released, prepay speeds available – broad declines for 5^th month running

What We’re Reading

Market Today | Daily

Weekly Recap | Weekly, Friday

Monthly Review (February) | Monthly, 1^st business day

Brokered Deposit Rate Indications | Weekly, Monday

Investment Alternatives Matrix | Weekly, Tuesday

MBS Prepay Commentary (February) | Monthly, 5^th business day

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

WSJ: U.S. Treasurys Regain Favor

“Aiding the recent bond rally is the fact that yields are retreating from multiyear highs, investors noted. Faced with persistent inflation and a shift in tone from Fed officials, investors in January and February went from predicting about three rate increases this year to seven or more. That hurt both bonds and stocks but also created more room for yields to fall if the growth outlook darkens.”

Vining Sparks: Strategic Insight: HTM and Other Alternatives

The recent increase in interest rates and discussion of the Fed paring back its QE measures has caused many depository institutions to focus on their exposure to earnings and capital from rising interest rates. There are three primary areas where exposure to rising rates is most easily quantifiable: in net interest income simulations, in economic value of equity (EVE) simulations, and in projected price volatility for the investment portfolio. For institutions beginning to encounter exposure to higher rates, there are several strategic options available to reduce interest rate risk.