May 6, 2019
After a busy week of economic data releases, Treasury yields largely posted increases across the board. Driving markets this morning are tweets made yesterday by President Trump threatening higher tariffs on China to go into effect this Friday if trade negotiations do not wrap up shortly. Stocks and bonds reacted accordingly with the S&P off by ~1% and 5- and 10-year Treasury yields down 4 and 5bps, respectively, from their close on Friday. Along with watching how trade negotiations unfold, markets will focus on Consumer Price Index (CPI) releases this Friday as Fed Chairman Powell described lack of inflation as “transitory” in his view after last week’s meeting.
- Agency Bullets tightened 1-2bps at 2 and 10 year maturities – unchanged at 5-year.
- Agency Callables out to 10-years 1-3bps tighter.
- Corporates tighter on short maturities, unchanged on longer.
- Short Munis widened for 3rd week in a row, longer tightened back to more recent levels.
- CMOs unchanged on the week, only sector that has widened Year-to-Date.
- MBS were split, 15-year tightened 3bps while 30-year was unchanged.
What We’re Reading
Market Today | Daily
Weekly Recap | Weekly, Friday
Investment Alternatives Matrix | Weekly, Tuesday
MBS Prepay Commentary (April) | Monthly, 5th business day
SBA Prepay Commentary (April) | Monthly, 10th business day
“In a pair of Twitter messages Sunday, Mr. Trump wrote he planned to raise levies on $200 billion in Chinese imports to 25% starting Friday, from 10% currently. He also wrote he would impose 25% tariffs “shortly” on $325 billion in Chinese goods that haven’t yet been taxed.”
“Bond traders will have one word on their minds as they gear up for the latest readings on inflation: ‘transitory.’”
Adjustable Rate Mortgage Market Update
Yield spreads between hybrid ARMs and Treasuries were unchanged last week, as the broader bond market moved down in price, sending yields slightly higher across the curve. ARMs lagged their fixed-rate MBS counterparts, with yield spreads tightening 3 bps on the 15-year fixed. We continue to see relative value in ARMs as they remain 10 to 24 bps wider compared to levels in early December.Continue Reading
Agency Market Update
Treasuries sold off on the week and sovereign debt yields increased by 3 to 5 basis points in the belly of the curve. The spread between 1- and 5-year Treasuries is still slightly negative but the 2s-to-10s slope has been hovering near the steeper levels of this year at approximately 20 basis points. Both agency bullets and callables mostly tightened in versus Treasuries last week. Yields for 3- and 5-year bullets increased by 3 to 4 basis points to 2.34% and 2.39%, respectively.Continue Reading
Fixed Rate Mortgage Market Update
Yield spreads on current-production MBS to Treasuries were mixed last week, with 15-year tightening 3 bps to 45 bps while 30-year held firm at 72 bps. After peaking at 1583 in early April, the MBA Refinance Index has slumped 22%, the result of a slight uptick in mortgage rates.Continue Reading
Municipal Market Update
Municipals prices started the week steady, were mixed on Tuesday and Wednesday, were steady again on Thursday and mixed again on Friday. New issue offerings are forecasted to be $6.5B for the trading week.Continue Reading
SBA Market Update
The May fixed-rate DCPC auction Thursday is expected to draw investor interest as many portfolio managers are considering strategies to extend duration and call structures to protect against falling rates. Fixed-rate SBA DCPC pools and SBIC debentures remain attractive as they offer superior convexity profiles to most residential MBS alternatives.Continue Reading
CMO Market Update
CMO spreads to Treasurys were unchanged last week. For the week ending April 24th, a 2-3 basis point widening undid two consecutive weeks of modest tightening, leaving yields on 3, 5, and 10yr PACs and Sequentials effectively unchanged from the beginning of April to now.Continue Reading