November 15, 2021
If I had to sum last week up in one word, it would be “inflation”. In this last publication, I opined that yield declines seemed a bit overdone, in my view, considering ongoing inflationary pressures. The bond market seemingly came to the same conclusion aided by the CPI release on Wednesday, a 31-year high. Inflation was broad based and higher than expected. You can find more coverage of that in the economic team’s Market Watch video.
Yields moved sharply upward reversing the prior week’s declines and, in most cases, pushed even higher. The 2-. 3-, and 5-year all had or matched their largest weekly move upwards of the year. The 10-year managed to completely reverse what was its single-largest weekly decline of this year. Words, mine at least, aren’t great at capturing the volatility so I’ve included several visuals below.
Today – Yields higher, curve steeper, equities largely negative
Activity was strong for a holiday-shortened week and especially so on Wednesday as yields moved markedly higher. Compared to the prior two weeks, this week is relatively quiet from an economic data standpoint. This week features a number of Fed speakers on Tuesday along with the October retail sales reports. Yields have continued to move higher this morning with the 2-5 year portion of the curve at/near highs for the year.
Yields on 2-, 3-, and 5-year maturities closed at weekly highs for 2021
Sector Commentary (click on links for more in-depth look)
- Government/Agency Space
- Bullet spreads unchanged last week
- Callable spreads wider for third week
- 5-year and shorter unchanged to 1 bp wider
- Longer maturities 9bps wider
- Last week, issuance $1.6 Billion — $105 Million called
- Agency CMBS, MBS, and ARMs
- SBA DCPC spread unchanged for the week
- Spreads are 4 bps wider over the past month, 9 bps tighter YTD
- Spreads on seasoned collateral can be higher, more premium risk though
- SBA Floating 7(a) Pool factors due out this week, hopefully no delay this month
- 51% of business owners have job openings unable to fill, topping 48-year highs
- Quality and Cost of labor concerns highest since pandemic began
- Agency MBS spreads were tighter, 15-year 3 bps tighter and 30-year 2 bps tighter
- Freddie Mac PMMS shows mortgage rates declined
- 30-year rate at 2.98% (-11 bps from prior) | 15-year rate at 2.27 (-8 bps from prior)
- YTD — 30-year is + 31 and 15-year is +10 bps
- 30-year is +33 from all time low on 1/7/21 of 2.65
- 15-year is +17 from all time low on 8/5/21 of 2.10
- Agency CMOs spreads unchanged across the stack
- SBA DCPC spread unchanged for the week
- Municipals – spreads tighter on Treasury selloff
- BQ Munis, 5-year 10 bps tighter, 10-year 4 bps tighter, 15-year unchanged
- GM Munis, 5-year 10 bps tighter, 10-year 11 bps tighter, 15-year 6 bps tighter
- Taxable Munis, 5-year 3 bps tighter, 10-year 3 bps tighter, 15-year 6 bps tighter
- A-Rated Corporates – 2-year unchanged, 5-year 7 bps tighter, 10-year 7 bps tighter
- Vining Sparks Interest Rate Products
- Release of higher than expected CPI data and a terrible Treasury auction increased interest rate volatility
- Loan hedging and creating floating rate munis continues to dominate activity
- Virtually all commercial loan hedging deals are now priced using SOFR, FF Effective, or Prime
- See full commentary for benefits of implementing a loan heading program
What We’re Reading
Market Today | Daily
Weekly Recap | Weekly, Friday
Monthly Review (October) | Monthly, 1st business day
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
“Interest-rate futures are saying something different. They now imply the odds of the Fed raising its target range by at least a half point by the end of next year at 83%, according to CME Group calculations. Following the Fed’s September meeting, the odds of that happening were just 22%. Moreover, the futures now put the odds of the Fed raising rates by three-quarters of a point or more at 54%.”
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