May 30, 2017
Nearly stagnant yields left the Treasury curve almost unchanged last week. For maturities from two years to thirty years, Treasury yields finished the week within 1bp of where they started. Economic data failed to produce surprises large enough to move markets, with weakness in home sales seemingly offset by the balance of data. Timelines for anticipated policy changes from tax codes to health care failed to clarify and global tensions maintained their same ominous position, neither worsening nor improving.
While yields all across the bond market stayed in small ranges last week, some sectors managed to at least move in measurably noticeable ways. Yield declines occurred for all maturities of municipal debt in the tax-free municipal market. Callable debt yield spreads versus Treasuries also moved tighter for most terms and structures. Spreads in the mortgage sector held steady, only responding meagerly to the Fed’s description of plans to diminish MBS holdings over time. This response was consistent with spread behavior in this sector for some time now; please refer to the Strategic Insight, The Intriguing Path of MBS Spreads. Meanwhile, spreads based on credit risk in the corporate and ABS sector changed very little during the week.
Inconsistent activity levels occurred last week, varying greatly from day to day and from sector to sector. For the most part, new issuances met enthusiastic enough responses to support spreads. There were some bid lists in the mortgage and municipal sectors, and these met favorable responses from other investors as well. The lack of volatility and near stagnant bond prices provided little in the way of urgency for both buyers and sellers though, and a wait-and-see attitude seemed to continue to prevail.
Five-year Treasuries finished trading Friday at a yield of 1.79%, 11bp below their year-to-date daily closing average and 21bp above the average for the last year of trading. The 2.25% yield at which the ten-year Treasury traded at the close of business on Friday was 14bp below the year-to-date average and 20bp above the average daily close for the last year.
Adjustable Rate Mortgage Market Update
Yield spreads for new-issue hybrid ARMs to Treasuries were 1 to 2 bps wider on the week, possibly due to the increased level of supply. ARM originations totaled $2.8bn during May, an increase of 11% over the previous month.Continue Reading
Agency Market Update
Agency yields increased slightly across the curve during the previous week, with larger changes occurring on shorter maturities. On the week, two-year Agency yields increased 3 bps to 1.38%, 5-year Agency yields increased 1bp to 1.89%, and yields on 10-year Agencies also rose by 1 bp to 2.62%.Continue Reading
Fixed Rate Mortgage Market Update
Activity was light last week in the MBS and CMO sectors impacted by slightly higher prices, curve flattening and a couple basis points of spread tightening between MBS and their Treasury benchmarks, which created just enough uncertainty to keep many portfolio managers on the sidelines last week.Continue Reading
Municipal Market Update
Municipal bond funds recorded inflows for the week, as weekly reporting funds experienced $326.188MM in inflows in the latest reporting week, after experiencing inflows of $426.721MM the week prior. The four-week moving average remained positive at $388.683MM, after being a positive $326.188MM the week prior.Continue Reading
SBA Market Update
The holiday-shortened week, coupled with the anticipation of the release of The Fed’s May meeting minutes set the stage for very little activity in trading of SBA securities. Recent activity for floating-rate SBAs has been strong, as investors anticipate a continued increase in short-term rates.Continue Reading