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, a reprieve in the back-up in Treasury yields proved to be short-lived as remarks from a key Fed leader reignited focus on the central bank’s plans for aggressive monetary policy tightening. New York Fed President, John Williams, stated that raising interest rates in 0.50% intervals was a “reasonable option.” The yield on the […]Continue Reading
Agency Market Update
The Treasury curve steepened last week as shorter-term yields declined while the longer end sold off, sending the 10-year yield to 2.83%, up another 12 basis points from the week before. With the 10-year yield moving higher, the 2s-to-10s spread had un-inverted the previous week, and last week the 3s-to-10s spread moved into positive territory […]Continue Reading
Fixed Rate Mortgage Market Update
Current Yield Spreads The Treasury curve steepened again last week as the market digested the latest inflation data. The 2s/10s slope increased 19 bps to 38 bps as the 2-year Treasury yield declined 6 bps to 2.45% and the 10-year Treasury yield increased 13 bps to 2.83%. Headline and core CPI for March accelerated from […]Continue Reading
Municipal Market Update
In this week’s Municipal Market Update, we highlight the following: Municipal prices weakened last Monday, were mixed on Tuesday and Wednesday, and steady on Thursday, 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; New issue offerings for […]Continue Reading
SBA Market Update
Fixed-Rate SBA DCPCs (SBAP) Investor interest in fixed-rate SBA DCPCs remains strong as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. The DCPC auction priced at historically tight spreads for much of 2021; however, spreads have widened approximately 90 bps since June 2021. Debenture rates increased and yield spreads widened […]Continue Reading
CMO Market Update
CMO activity was lighter than usual last week ahead of Thursday’s early close and the holiday weekend. One structure that saw decent demand was a 3.0% PAC off FNCL 4.0% collateral. Yield Book projects a WAL of 4.3 in the base case, with minimal extension in rising rates scenarios (around 5 years +300 bps). As […]Continue Reading