Sector Update

November 29, 2021

The Thanksgiving holiday split last week into two distinct periods. I like to think of it as BC (before cranberry) and AD (after dressing). As you can see in the table below, yields broadly increased Monday and Tuesday and were still positive when the market closed Wednesday. Prior to Thanksgiving, markets were already struggling to digest a surge of COVID-19 cases in Europe so it certainly came as a shock when the WHO named a variant of concern, “Omicron” on Friday.

The market reaction was pronounced and likely compounded by the short trading day and lightly staffed trading desks following the Holiday. Further down you can see markets have reversed some of the declines this morning. It helps symptoms are described as “extremely mild” by the South African doctor who spotted the variant. While cognizant of Omicron, I remain focused on fundamentals and am watching for more volatility this week around Fed speakers and further looks at inflation readings.

I wrote last week that inflation is seemingly ever-present; still, I doubt the Fed found this as interesting as I did. Last week, Dollar Tree, Inc. announced they are rolling out a $1.25 price point at all stores nationwide. To be fair, it would have had to happen at some point, but they managed for the past 35 year to maintain a $1.00 price point. They go on to say, “This decision is permanent and is not a reaction to short-term or transitory market conditions.”

Today – Yields higher in a steeper move, equities largely positive

Yields on 2-, 3-, and 5-year maturities remain near highs this morning after increasing from Friday’s close

Sector Commentary (click on links for more in-depth look)

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

WSJ: Stocks Rise as Investors Weigh Omicron Variant

“Investors are awaiting more clarity on the transmissibility and severity of the Omicron variant and how well it can be contained by existing vaccines.”

Vining Sparks: Strategic Insight: Year-End Balance Sheet Management

As the end of 2021 approaches and planning for next year begins, we have developed several balance sheet and portfolio management strategies considering the current banking landscape and challenges that could weigh on future profitability. Additionally, we have updated our annual Year-End Checklist to help serve as a guide through the planning process.

Vining Sparks: Loan Trading: RV Market Analysis

Historically low interest rates, several rounds of stimulus, and pent-up travel demand all helped contribute to RV shipments ending 2020 with a 6% increase over 2019 and on par with the third best year ever despite shutdowns. Positive momentum has continued so far in 2021 setting new all-time highs in each of the last nine months.

Vining Sparks: Strategic Insight: Price Volatility on Tax-Free Municipal Bonds

Have you ever wondered why the price volatility you see on tax-free municipal bonds is less than comparable taxable bonds? At Vining Sparks, we consider taxes when measuring interest rate risk on tax-free municipal bonds. The rationale is simple: taxes matter. In this Strategic Insight, we look at the implications of ignoring taxes and why we think it makes sense to consider them.

Vining Sparks: MBS & Prepayment Update

This presentation looks back over 2021 and how different prepay models have performed so far this year. It is always important, but especially in this environment, that robust prepayment assumptions are used. We also make note that Yield Book is scheduled to release a model update and provide some background and comparisons.

Vining Sparks: Loan Trading: Auto Market Analysis

Auto loans continue to be a large part of our customers’ loan portfolios and a participation class that remains in favor. It is important to stay abreast of market changes in rates and potential credit concerns that may be creeping in that could impact production and performance.

Vining Sparks: Strategic Insight: New SBA 504 Debt Refinancing Program

The SBA recently published a rule implementing section 328 of the Economic Aid Act. Section 328, titled Low-Interest Refinancing, revises the requirements for refinancing debt with an SBA 504 Loan. The net effect of these revisions points towards greater ease and availability for certain borrowers, who were previously disallowed, to refinance using an SBA 504 loan.

Vining Sparks: Coronavirus Chartbook and Coronavirus State Charts

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