October 4, 2021
Written here in this exact same space last Monday: “Last week had all the ingredients for volatility and it didn’t fail to deliver.” I couldn’t have said it much better myself in trying to describe the market moves only one week later. That same volatility only gained further momentum, but in the opposite direction. The Evergrande story in China had nearly every market participant feeling some market jitters, particularly given the Lehman-like echoes and general fear of another GFC-type event.
U.S. 10-Year Daily Candlestick Chart
S&P 500 Daily Candlestick Chart
Expanding on how bond yields moved last week, Treasurys rallied hard after finally selling off a bit. Of course, bond yields moving lower last week only happened after the market had a bit of time to digest the moves made by the FOMC the week before. To sum up, the Fed moved their “dots” higher and sooner, and it was perhaps a bit sooner than maybe was anticipated. The dot plot shows a spilt committee with 50/50 odds of the next rate hike in 2022. So, this “hawkish” Fed meeting that concluded the Wednesday prior set the stage for the data-heavy week that we saw last week.
Today – Yields mostly unchanged, curve steeper, equities mixed
As the third quarter ends, this week has plenty of economic news on tap along with several FOMC members scheduled to speak. Usually, quarter-ends tend to be a quieter period of activity. This week may be an exception though. Yields are at levels not seen since June and even then, they were fleeting. I expect some will remember this and will make time at quarter end to take a closer look at what’s available.
Yield Curve Shape – 2s-5s 2 bps flatter last week as 3- to 5-year yields declined
Yield Curve Shape –2s-10s spiked through 20-day Mov Avg, 1 bp steeper last week
Sector Commentary (click on links for more in-depth look)
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 (September) | Monthly, 5th business day
SBA Prepay Commentary (August) | Monthly, 10th business day
“Inflation as measured by the Labor Department’s consumer-price index was 5.3% in the 12 months through August, close to the highest in 12 years. Economists generally expect that to fall, but disagree on how much. They attribute much of the recent surge in prices to temporary causes-such as a post-vaccine spending upsurge, specific supply-chain problems and other production bottlenecks-that should fade as businesses ramp up output. But a key question is whether prices will continue to rise more persistently once these temporary disruptions end.”
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.
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.