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

On the data front last week, retail sales rose a seasonally adjusted 0.7% after rebounding 0.7% in August from July’s 1.8% slide. As for monetary policy, we expect the Fed to commence asset purchase tapering in November, as indicated in its September meeting minutes. On the week, yield spreads on Ginnie and conventional ARMs were […]

Agency Market Update

Treasury yields resumed their march higher last week, at least in the intermediate portion of the curve, as the market continues to price in the Fed moving forward with tapering its asset purchases ahead of eventual rate hikes. As can be seen in the chart below, the 3-year note moved higher by 11 basis points […]

Fixed Rate Mortgage Market Update

Current Yield Spreads The Minutes from the Fed’s September meeting confirmed that officials are warming up to announcing their tapering plans soon. Most officials supported a plan developed by Fed staff that “was designed to be simple to communicate and entailed a gradual reduction in the pace of net asset purchases that, if begun later […]

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, weaker on Thursday, and steady 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; […]

SBA Market Update

Fixed-Rate SBA DCPCs (SBAP) Investor interest in fixed-rate SBA product remains strong as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. The DCPC auction has priced at historically tight spreads for much of this year; however, spreads have widened approximately 20 bps since June. Supply in the secondary market for […]

CMO Market Update

Treasury yields continue to rise, particularly in the 3-5 year portion of the curve where our customers are most active in the CMO sector. As a result, traders observed CMO spreads tighten 2 basis points last week for fixed and floating-rate bonds. For the maturities and structures we monitor, CMO spreads have moved in a […]