Sector Update

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

Last week, the 10-year U.S. Treasury ended the week at 1.58% resulting in a weekly decline of 5 basis points.  On the data front, U.S. nonfarm payroll employment increased by 266,000, a large miss relative to elevated expectations, and the unemployment rate rose by 10bps to 6.1%, in part due to a 20bps increase in […]

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Agency Market Update

Last week was a busy one in the financial markets with several impactful economic releases, the real highlight being the jobs report on Friday.  The Street was expecting nearly 1 million payrolls added, yet the number posted was a mere 266k.  Bonds rallied sharply on the news, with the 10-year yield falling to its intraweek […]

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Fixed Rate Mortgage Market Update

Current Yield Spreads The MBS rally finally reversed course last week as spreads to Treasurys widened modestly from historically tight levels.  Spreads on 15-year MBS widened 4 bps to 44 bps, while spreads for 30-year MBS widened 2 bps to 49 bps. Trading Activity The summary below reflects purchase activity from the previous week.  The […]

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Municipal Market Update

In this week’s Municipal Market Update, we highlight the following: Municipal prices were mixed on Monday and Tuesday, steady on Wednesday and Thursday, and were mixed again on Friday, as reflected by weekly data for the Municipal Market Data (MMD) Triple-A Scale; also shown are the yields for the Municipal Market Advisors (MMA) Triple-A Scale; […]

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SBA Market Update

Fixed-Rate SBA DCPCs (SBAP) – May Auction Last Week The May fixed-rate SBA DCPC auction last week saw strong investor interest as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. The May DCPC auction priced at historically tight spreads. Supply in the secondary market for SBA fixed rate product has […]

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CMO Market Update

CMO spreads to Treasury yields were unchanged last week and remain steady in 2021, widening 1-4 basis points year-to-date depending on maturity and structure. This, coupled with higher Treasury yields, has translated to more attractive yields for CMOs, and for three months in a row we have seen average projected yields of greater than 1.00% […]

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