Sector Update

October 15, 2019

Treasury yields increased sharply last week in a nearly parallel fashion. Everything considered, it looked like yields reacted to a market perception of less overall risk. Yields on maturities 2-years and longer increased by 18-21 bps, reversing (and then some) the decline in yields from the prior week. Most of the push higher in yields came later in the week though as yields closed virtually unchanged from the prior week through Tuesday of last week.

The increase in yields kicked off Wednesday morning as China reportedly remained open to a partial trade agreement even though the U.S. blacklisted Chinese companies and blocked visas for officials it believes are involved in human rights violations. On Thursday, yields took off again as President Trump tweeted he would meet with China’s vice premier on Friday as well as Closing out the week, a messy Brexit looked less likely, previously announced tariffs were suspended, and President Trump cited a “substantial phase one deal” had been reached.

Yields over the past two weeks have behaved in an “easy come, easy go” fashion. So, it makes sense investors took advantage of the increase in benchmark yields as activity was strong later in the week. Over the long holiday weekend, some of the luster surrounding the trade deal has faded sending yields down 1-2 bps on maturities 2-years and longer this morning.

Weekly Spread Commentary

• Curve steepened by 1 bp measured by 2s-10s.

• Agency Bullets tightened 1-2 bps.

• Agency Callables tightened by 8-12 bps.

• Corporates tightened by 8-13 bps.

• Munis widened at 5-, 10-, and 15-year maturities by 8, 11, and 13 bps respectively.

• CMOs were 2 bps tighter.

• MBS were wider with the 15-year +4 and the 30-year +2 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 (October) | Monthly, 5^th business day

SBA Prepay Commentary (September) | Monthly, 10^th business day

WSJ: Government-Bond Yields Climb on Trade Talks, Brexit

“Yields on U.S. government debt have swung sharply in recent weeks. The 10-year yield, a key reference for corporate and individual borrowing costs, fell to a three-year low of 1.456% last month, dragged down by increasing fears of an economic slowdown. Signs of U.S. economic strength then sent the yield to its biggest weekly gain in six years before it stabilized within a relatively narrow range.”

WSJ: Fed’s James Bullard Cites Risk of Slowing Economy

“Mr. Bullard dissented against the Fed’s rate cut in September because it was smaller than he would have liked. The Fed is broadly expected to lower rates again when it meets at the end of the month, but officials haven’t been giving strong guidance that they are on board with such an action.”

Sector Updates