November 12, 2019
Treasury yields increased sharply, and the yield curve steepened last week. Yields increased last week by 13-24 bps on maturities 2-years and longer. For those keeping score at home, Treasury yields have now risen four out of the past five weeks. Also, by several measures, the curve steepened by 8-10 bps last week as well. This could come as welcome news to balance sheet managers positioning for year-end and looking ahead to 2020 though. For example, investors haven’t seen the 5-Year Treasury at current yields since mid-September. It didn’t stay there long though, as it soon sank 40 bps, not giving some investors time to react. Investors must look back to the middle of the year to see yields sustained at levels roughly equal to current.
This morning, yields opened largely unchanged from closing levels on Friday. Right now, markets are waiting on President Trump’s speech at the New York Economic Club scheduled for 11:00 a.m. Central Time. His message, and tone, will be heavily scrutinized by markets. Look for a recap in tomorrow morning’s Market Today.
Weekly Spread Commentary
- 3m to 2s closed at 13bps, its highest level since February.
- 2s to 10s slope 10 bps wider to 26 bps, its highest level since July.
- Agency Bullets virtually unchanged on the week, 10-year was 1 bp tighter.
- Agency Callables, 5-10 bps tighter across the curve.
- Corporates tightened 2-3 bps on the wings. 5-year was unchanged.
- BQ Munis lagged the Treasury selloff and tightened proportional to Treasuries.
- GM Munis lagged the selloff as well and tightened proportional to Treasuries.
- Taxable Munis held firm on the week.
- CMOs were 2 bps tighter on the week. Shorter maturities were unchanged.
- MBS were tighter, 15-year MBS tightened by 6 bps and 30-year by 4 bps.
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 (November) | Monthly, 5th business day
SBA Prepay Commentary (October) | Monthly, 10th business day
“Following the last two recessions, for example, yields on the benchmark 10-year U.S. Treasury yield declined by roughly 3.6 percentage points and 3.9 percentage points, respectively. ‘I will confess that I think it highly unlikely in the next downturn, whenever it is, that 10-year U.S. Treasury yields will fall by the roughly’ similar magnitudes, Mr. Clarida said.”
Adjustable Rate Mortgage Market Update
Since the rally at the end of 2018, ARM pricing spreads have widened significantly, reacting strongly to each move lower in rates. For example, 5/1 ARMs have a 62 bp spread, almost 44 bps wider than they were at the start of the year. Longer-reset 7/1s and 10/1s have a 68 and 76 bp spread, respectively, approximately 38 and 32 bps wider than levels in early 2019.Continue Reading
Agency Market Update
Last week agency bullets largely moved in line with Treasurys, while callables continued to tighten versus sovereign debt.Continue Reading
Fixed Rate Mortgage Market Update
Yield spreads for current coupon MBS to Treasurys tightened last week. 30-year MBS tightened by 4 bps to 96 bps, while 15-year tightened 6 bp to 61 bps.Continue Reading
Municipal Market Update
Municipal prices were mixed on Monday and Tuesday, steady on Wednesday, weaker on Thursday and mixed again on Friday. New issue offerings are forecasted to be $11.15B for the holiday-shortened trading week.Continue Reading
SBA Market Update
Fixed-rate SBA DCPC pools and SBIC debentures remain attractive as they offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads. With the Fed likely on hold for the foreseeable future after another 25 bp rate cut, floating rate bonds may see a pickup in activity as part of barbell portfolio strategies.
SBA floating pools with uncapped quarterly resets indexed to Prime offer attractive yield opportunities compared to 3-month T-Bills.
CMO Market Update
CMO spreads to Treasurys tightened 2 basis points week-over-week. Not too bad considering the movement we saw in Treasury yields. The 3-year rose 15 basis points, while the 5-year (21 bps) and 10-year (23 bps) each rose greater than 20 basis points.Continue Reading