Sector Update

May 3, 2021

Breaking a 3-week trend of declines, yields increased last week on maturities 5-years and longer and the curve steepened. The FOMC meeting last week was relatively uneventful. They reiterated patience in the face of an economy adding steam. As most expected, there was no news on tapering of asset purchases. Some hope for news at the June meeting, but that seems unlikely. Powell’s appearance at Jackson Hole in August is the next mostly likely time. There is a busy economic calendar this week providing further looks into the strengthening of the economy. Earlier this morning, yields were down 3-4 bps on weaker-than-expected construction (from March) and ISM Manufacturing data but have since recovered.

Bond Index Returns – April 2021

In large part, depository fixed-income investors will welcome April’s broad positive returns. February and March were mostly negative as spread tightening couldn’t overcome increases in benchmark yields. In April, all else equal, losses shrank, and gains increased. Frankly, I think many depositories would be okay with spreads widening and/or benchmark yields increasing even if it did affect some current holdings as it would further bolster their run-rate moving forward. As it stands, the Fed and a market awash with liquidity is likely to keep a lid on spreads for the time being.

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 lower from Friday’s close after two weaker-than-expected economic reports this morning. ISM Manufacturing came in at 60.7 (65.0 expected) and Construction Spending came in at 0.2% (1.6% expected). Broad U.S. equity indices remain positive this morning except for the NASDAQ.

Equity Index Performance YTD

Long and intermediate yields decline increased, short yields unchanged

10- and 5-year yields within 25 and 83 bps from start of 2020 – up 71 and 49 bps YTD respectively

Yield Curve Shape – 2s-5s and 2s-10s still steep, even after recent pullbacks

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 (April) | Monthly, 5th business day

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

WSJ Saturday Essay: How a More Resilient America Beat a Midcentury Pandemic

“A striking contrast between 1957 and the present is that Americans today appear to have a much lower tolerance for risk than their grandparents and great-grandparents.”

WSJ: Americans Can’t Get Enough of the Stock Market

“Individual investors are holding more stocks than ever before as major indexes climb to fresh highs. They are also upping the ante by borrowing to magnify their bets or increasingly buying on small dips in the market”

Vining Sparks: Coronavirus Chartbook

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