Sector Update

May 10, 2021

For the fourth time in the past five weeks, yields declined last week. They drifted lower during the week, save Thursday, and experienced a sort of bifurcation on Friday due to the jobs report. The jobs report was one of the (if not the) biggest misses in recent history. It likely isn’t a surprise to many readers, especially business lenders, the challenges faced in filling open positions. The knee-jerk reaction to the report was “this is awful” and yields fell precipitously. The 10-year Treasury dropped 10 bps before recovering later in the morning and closed Friday higher. The 5-year faced a similar decline at first but, unlike the 10-year, it never recovered. It’s another manifestation of markets struggling to digest data. What I mean is, the jobs report was negative from an economic activity standpoint but could also point towards more wage inflation pressure. On Wednesday and Thursday of this week we’ll have much watched CPI and PPI measures, both gauges of inflation, to consider. Time will tell if any surprises are in store.

A Few Points to Start Your Week

Recent Webinar: LIBOR Update, Are you Ready?

We recently hosted a webinar on the transition away from LIBOR. We now have more clarity on specifics like the SOFR/LIBOR spread adjustments and progress toward a fix for “tough legacy contracts”. While the market has come a long way since the initial announcement, there are still some unknowns. You can view the presentation and access the slides in our Webinar Archive.

Upcoming Webinars – (1 hour CPE available)

Bank 5/11: Balance Sheet Management and Your Loan Portfolio

Credit Union 5/13: Loan Participation Market Overview

Bank 6/15: Mortgage Market Update & Opportunities

Credit Union 6/17: Mortgage Market Update & Opportunities

Bank 6/24: 2nd Quarter 2021 Bank Advisory Webinar


Treasury yields are mixed from Friday’s close so far this morning. Shorter maturities are unchanged to down slightly while longer maturities are unchanged to slightly higher. It looks like a hangover from the Friday jobs report where longer-term inflation is still on the minds of many, but in the near term, perhaps the odds of the Fed removing accommodation any earlier than previously anticipated has diminished. Broad U.S. equity indices remain positive this morning except for the NASDAQ and Russell 2000. The Dow, in morning trading, topped a new high of 35,000.

Yields decline for the fourth time in the past five weeks

10- and 5-year yields within 30 and 90 bps from start of 2020 – up 66 and 42 bps YTD respectively

Yield Curve Shape – 2s-5s and 2s-10s still relatively steep, slip from recent highs though

Sector Commentary (click on links for more in-depth look)

What We’re Reading

Market Today | Daily

Weekly Recap | Weekly, Friday

Brokered Deposit Rate Indications | Weekly, Monday

Investment Alternatives Matrix | Weekly, Tuesday

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

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

WSJ: The Mortgage Boom Is Fading

“A drop in refinancing activity is a big reason why. With the 30-year mortgage rate near 2.97%, about 14.5 million Americans could lower their monthly mortgage payments through a refinancing, according to mortgage-data firm Black Knight Inc. That is down from 18.7 million near the start of the year, when mortgage rates reached a record low of 2.65%.”

Bloomberg: Inflation Brews for U.S. Producers While Services Wages Pick Up

“Despite an elevated unemployment rate, many firms have cited troubles finding qualified workers. As a result, some are offering incentives like signing bonuses and boosting wages to attract applicants. Some 28% of small businesses reported raising compensation in a March survey by the National Federation of Independent Business.”

Vining Sparks: Coronavirus Chartbook

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