May 1, 2017
Small yield increases occurred across most of the bond market last week. Treasury yield increases of 4bp to 7bp for all maturities one year and beyond did little to change the shape of the yield curve, suspending the two-month long flattening trend for a week. The week featured more tension than information. A light economic calendar last week and the absence of major new news stories left markets to dwell on ongoing concerns abroad, a pending FOMC rate decision this Wednesday, and a very heavy economic calendar for this week.
While many portfolio managers took a wait-and-see attitude last week, quite a bit of business was still transacted. A small but nonetheless welcome uptick in rates invited some cash accumulated during the recent rally back into the market, and there were also significant restructuring trades – selling bonds to fund purchases that realigned portfolios with investment objectives or balance sheet needs. Activity was spread across a variety of durations and the overall pace was in line with recent weeks.
Few notable changes occurred in inter-sector spreads last week. Credit spreads inched in a bit, pushing investment-grade corporate spreads versus Treasuries 1bp to 3bp tighter. Municipal spreads benefitted from this and also perhaps from changes in expectations as to the timing and exact nature of pending changes to tax codes. Nothing monumental changed – the provisions described last week were generally in line with previous discussion. However, the lack of detailed information implied a longer timeline than many expected. And while elimination of AMT had already been discussed, naming it as a key facet of the plan also changed the perceived likelihood in the minds of some listeners. This and other perceptions tilted in such a way as to slightly benefit municipal debt and pressured spreads slightly tighter.
Five-year Treasuries finished last week at a yield of 1.81%, 9bp, below their year-to-date daily closing average and 30bp above the average for the last year of trading. The 2.28% yield at which the ten-year Treasury ended Friday is 13bp below the year-to-date average and 27bp above the average daily close for the last year.
Adjustable Rate Mortgage Market Update
While the 10-year U.S. Treasury yield ended the week near the previous Friday’s level, the 2s10s curve has given up almost all of the steepening observed over the first half of 2021. The flatter curve reflects a recalibration of expectations for Fed policy following the Fed’s hawkish policy shift at their June meeting. This week’s […]Continue Reading
Agency Market Update
In the past month, the highly contagious Delta variant has led to a parabolic surge in cases in the U.S., mimicking the recent waves seen in the U.K. and Israel, despite the strong vaccine penetration in all three nations. These developments have led to investors seeking safety haven assets like bonds, sending yields steadily lower […]Continue Reading
Fixed Rate Mortgage Market Update
Current Yield Spreads Concern over the spread of the Delta variant sent the 10-year Treasury down to 1.13% early last week before it recovered to finish the week at 1.28%. MBS yield spreads were mixed on the week. Spreads on 15-year MBS (1.5s) tightened by 2 bps to 38 bps, while yield spreads on 30-year […]Continue Reading
Municipal Market Update
In this week’s Municipal Market Update, we highlight the following: Municipal prices strengthened to start last week, were steady across the curve on Tuesday, were mixed on Wednesday and Thursday, and were steady on Friday, as reflected by weekly data for the Municipal Market Data (MMD) Triple-A Scale; also shown are the yields for the […]Continue Reading
SBA Market Update
Fixed-Rate SBA DCPCs (SBAP) Investor interest in the August fixed-rate SBA DCPC auction next week is expected to remain strong as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. The DCPC auction has priced at historically tight spreads this year; however, spreads widened 13 bps month over month. Supply in […]Continue Reading
CMO Market Update
Last week’s CMO update discussed how the recent decline in rates could lead to a 1.00% yield becoming less attainable for bonds with a 3-5 year WAL, the portion of the curve in which our customers typically traffic. Our weekly Investment Alternatives Matrix was released the following day (TSY and CMO sections shown below), with […]Continue Reading