November 22, 2021
After two weeks featuring a volatile whipsaw move in Treasury yields, last week was rather boring when looking from beginning to end. Yields ended the week plus/minus 1-2 bps on maturities 3-years and longer. That doesn’t tell the whole story though. On Monday and Tuesday, yields continued the prior week’s move higher and the curve steepened. Yields turned downward on Wednesday though and continued throughout the week. This change in direction was largely a function of markets (again) struggling to digest a surge of COVID-19 cases in Europe. There was a big push down in yields on Friday as Austria announced a new lockdown and vaccine mandate. Germany also said it may take similar measures. In the meantime, inflation is seemingly ever-present and Fed officials aren’t silent on the issue. Complicating matters further was that, until this morning, it was still undecided who exactly would be the next Fed Chair.
This morning yields bounced higher on news Fed Chair Powell will be renominated for a second term. The bounce higher in yields shows just how much potential uncertainty there was around this event. For a holiday-shortened week, there is plenty of economic news (most on Wednesday) that could introduce volatility around the Thanksgiving holiday. The bond market will be closed Thursday and will have limited hours on Friday with a 2:00 pm (Eastern) early close.
Today – Yields higher in a nearly parallel move, equities largely positive
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, relatively unchanged for at least the past two months
- Callable spreads mixed
- 5-year and shorter unchanged to 4 bps tighter
- Longer maturities unchanged to 1 bp wider
- Last week, issuance $1.6 Billion — $105 Million called
- Agency CMBS, MBS, and ARMs
- SBA DCPC spread 1 bp tighter last week
- Spreads have been relatively stable over the past
- Spreads on seasoned collateral can be higher, more premium risk though
- SBA Floating 7(a) Pool factors recently released and prepay speeds are available
- 16% of NFIB respondents list inflation as their single most important problem
- 49% still have job openings they are unable to fill, a slight improvement from previous at 51%
- Agency MBS spreads were mixed, 15-year 4 bps wider and 30-year 1 bp tighter
- Freddie Mac PMMS shows mortgage rates declined
- 30-year rate at 3.10% (+12 bps from prior) | 15-year rate at 2.39 (+12 bps from prior)
- YTD — 30-year is + 43 and 15-year is +22 bps
- 30-year is +45 from all time low on 1/7/21 of 2.65
- 15-year is +29 from all time low on 8/5/21 of 2.10
- Agency CMOs spreads were 2 bps tighter across the stack
- SBA DCPC spread 1 bp tighter last week
- Municipals – spreads wider for the week
- BQ Munis, 5-year 7 bps wider, 10-year 8 bps wider, 15-year 6 bps wider
- GM Munis, 5-year 7 bps wider, 10-year 1 bp wider, 15-year unchanged
- Taxable Munis, 5-year 5 bps wider, 10-year 3 bps wider, 15-year 13 bps wider
- A-Rated Corporates – 2-year 5 bps wider, 5-year 3 bps wider, 10-year 3 bps wider
- Vining Sparks Interest Rate Products
- Volatility declined last week as rates closed down slightly across a flattening curve
- Markets weighing Fed tightening against possibility of new COVID-19 outbreak like in Europe
- Portfolio hedgers very active with most creating their own floating-rate munis
- See full commentary this week for 10 Thanksgiving trivia questions
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 (November) | Monthly, 10th business day
“The president’s decision reflected a desire by Mr. Biden to maintain stability at the central bank amid public concerns about high prices for everything from groceries to fuel, administration officials said. Mr. Biden’s aides said they want to focus much of their attention on passage of their social spending and climate legislation and believe Mr. Powell will more easily win confirmation.”
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