Sector Update

October 26, 2020

The Treasury curve was markedly steeper last week as yields increased. Shorter maturities increased by 2 bps and longer maturities increased by 8-11 bps. The 2-10 spread closed last week 7 bps higher at 68 bps. Even though the 2-10 spread is slightly flatter this morning, the 2-10 spread looks to have pushed out of the range it has occupied for most of the Pandemic. As we have mentioned previously, the greater likelihood of additional stimulus measures and associated increases in borrowings and/or a stronger than expected recovery is likely pushing the curve steeper. If COVID-19 cases continue to push into record territory, part of this rationale for a steeper curve will weaken, and we could see the curve flatten.

Bond Fundamentals Webinar Series

We’d like to thank everyone who attended last week’s 4-part 2020 Bond Fundamentals webinar series. Both the presentations and a recording of each session are now posted in the Webinar Archive of the online portal (login necessary). If you need to register for access, please click here.

This Morning

Stocks, gauged by S&P 500 Index, ended their 3-week winning streak on Friday. So far this morning, all three major U.S. indices are down 1.5% to 2.6% as the likelihood of fiscal stimulus dim prior to the election and a record surge of COVID-19 cases. Treasury yields have given back some of last week’s gains and the curve is flatter this morning. The 2-10s is 3 bp lower from the Friday close, currently at 65 bps.

Food for Thought – FNMA MBS 2020 Production by Coupon

I thought some readers might find it interesting to look at both the volume and composition, by coupon, of FNMA MBS issued so far this year. There are a couple observations to make. First, absolute issuance is high. For example, September 2020 30-year MBS production is 169% of the same period last year. Second, lower coupons have grown as a % of overall production, not surprising as benchmark rates have declined so much this year. 2.00% coupons have grown the most, but 1.50% coupons are showing steady growth in both 15- and 30-year productions.

Source: eMBS, Vining Sparks

Sector Commentary

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, 5th business day

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

Vining Sparks: Year-End Balance Sheet Management

“As the end of 2020 approaches and preparations for next year begin, we have updated our annual Year-End Checklist to reflect these unique challenges to help with your planning process. Additionally, we have developed several balance sheet and portfolio management strategies for your consideration.”

Vining Sparks: Coronavirus Chartbooks

PDF/Mobile: Coronavirus Chartbook (PDF)

Regulatory Links

FHFA: 10/20 Temporary Policy Allowing Purchase of Qualified Loans in Forbearance Extended

FDIC: 10/20 Temporary Relief from Part 363 Audit and Reporting Requirements (FIL-99-20)

FDIC: 10/20 Net Stable Funding Ratio (FIL-98-20)

FDIC: 10/14 3rd Quarter 2020 Call Reports (FIL-97-20)

SBA: 10/8 SBA and Treasury Announce Simpler PPP Forgiveness for Loans of $50,000 or Less

Fannie Mae: 9/30 Fannie Mae Extends Timeframe for Single-Family MBS Delinquent Loan Buyout Policy

Ginnie Mae: 9/24 Notification regarding Loans after Deferment Loss Mitigation

FHFA: 9/24 Extends Buying Loans in Forbearance & COVID-Related Loan Processing Flexibilities

Ginnie Mae: 9/21 Ginnie Mae Announces Pooling Restrictions for LIBOR-based Adjustable-rate Mortgages

FDIC: 9/18 Results of Summary of Deposits Annual Survey

Federal Reserve: 9/16 Federal Reserve issues FOMC statement

LIBOR Transition Links

ARRC 10/15: FAQs — Updated 10/15/2020

ARRC 9/30: August – September ARRC Newsletter

ARRC 8/27: Recommended Hardwired Fallback Language for Bilateral Business Loans

ARRC 8/18: Transition Resource Guide for ARM and Private Student Loans

ARRC 8/7: ARRC Releases the SOFR Starter Kit

ARRC: Link to all ARRC Announcements

ARRC: Link to all ARRC Publications

ARRC: Link to ARRC Fallback Contract Language

Fannie Mae: LIBOR Transition Webpage

Freddie Mac: LIBOR Transition Webpage

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