Sector Update

May 13, 2019

The lack of a trade deal has come home to roost. Last week Treasury yields were driven down 4-8bps as a trade deal became increasingly less likely throughout the week. Compounding the decline in yields were softer than expected Producer Price and Core Consumer Price inflation readings. China has also announced their own retaliatory tariffs. So far this morning, Treasury yields are down an additional 5-10bps and the Dow Jones and S&P 500 are off ~2.0%. It is likely that trade negotiations (or lack thereof) will largely drive markets this week. There is also a slate of Fed communication due this week, but, in light of recent events and economic releases, it’s hard to imagine them saying anything too surprising.

Spread Commentary

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, May release tomorrow) | Monthly, 10th business day


WSJ: Fannie and Freddie Back More Mortgages of Those Deeply in Debt

“Almost 30% of loans that mortgage giants Fannie Mae and Freddie Mac packaged into bonds last year went to home buyers whose total debt payments amounted to more than 43% of their incomes, according to an analysis by industry research group Inside Mortgage Finance. The share has nearly doubled since 2015.”


WSJ: Some Small Businesses See Big Benefits in Online Financing

“Many small businesses applying for financing have a love-hate relationship with online lenders. They say interest rates from the corner bank would be more favorable than those extended by web-based financiers. But they also expect online lenders to be more likely to provide funding, to make their decisions more quickly and to be less likely to require collateral.”

Sector Updates

Adjustable Rate Mortgage Market Update

Demand for new-issue hybrid ARMs slowed last week, which resulted in yield spreads to Treasuries widening 1 to 5 bps. ARMs outperformed their fixed-rate MBS counterparts, with yield spreads widening 5 bps on the 15-year fixed and 4 bps on the 30-year fixed.

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Agency Market Update

After mostly tightening in the week before, callables, along with 3-year bullets, widened out as sovereign debt rallied. Yields for 3- and 5-year bullets fell by 5 to 6 basis points to 2.29% and 2.33%, respectively.

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Fixed Rate Mortgage Market Update

Yield spreads on current production MBS to Treasuries widened last week, with 15-year widening 5 bps to 50 bps, while 30-year pushed higher by 4 bps to 76 bps. May-released factors indicated that mortgages saw a broad-based increase in prepayment speeds during April.

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Municipal Market Update

Municipals prices started the week stronger, were mixed on Tuesday, stronger again on Wednesday and Thursday, and steady on Friday. • New issue offerings are forecasted to be $6.8B for the trading week.

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SBA Market Update

Issuance declined and spreads tightened in the May fixed-rate DCPC auction last Thursday compared to the April auction. SBA 7(a) prepayment speeds for May will be available later this week.

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CMO Market Update

CMO spreads to Treasurys widened 3-5 basis points last week as Treasury yields dropped 4-8 basis points across the curve. For weeks, spreads for 5- and 10-year Agency CMOs have been at or near their widest levels since 2018, while shorter, 3-year CMOs have lagged that trend. Last week’s movement, however, leaves 3-year Agency Sequentials 3 basis points shy of a high watermark set in April of 2018.

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