Sector Update | ![]() |
September 13, 2021
The yield curve steepened for the third straight week last week. Yields moved up in the belly of the curve while they were unchanged elsewhere. Maturities from 3- to 10-years moved up 2-4 bps while other maturities, longer and shorter, were unchanged. Last week was interesting in that, as the week opened, yields moved 4-5 bps higher on Tuesday; meanwhile, stocks struggled – a theme that lasted all week. The S&P and Dow closed lower each day last week ending down 1.7% and 2.2% respectively.
The backdrop for last week was relatively slow from an economic perspective. On Wednesday, the JOLTs report jumped, somewhat surprisingly, to 10.9 million. When you consider unemployment was 8.7 million during the same time frame, the gap of 2.2 million people seems astounding. I thought it’d be interesting to see what this has looked like historically. The gap is certainly outside the historical norm, but it doesn’t look so out of line with more recent history leading up to the pandemic.
Upcoming Webinars – (1 hour CPE available)
9/14: Bank Municipal Market Update: Investment Strategies and Credit
Today – Yields lower, curve slightly flatter, equities largely positive
Curve ends week slightly steeper
Yields on 5- and 10-year continued their grind higher last week
Yield Curve Shape – 2s-5s remains above 20-day MA, 4 bps steeper last week
Yield Curve Shape –2s-10s remains through 20-day Mov Avg, 2 bps steeper last week
Sector Commentary (click on links for more in-depth look)
- Government/Agency Space
- Bullet spreads relatively unchanged, longer end 1 bp tighter
- Callables tighter
- 5-year and shorter 1 bp tighter
- Longer maturities 1 bp tighter
- Last week, issuance $1.4 Billion — $2.4 Billion called
- Agency CMBS, MBS, and ARMs
- SBA DCPC spreads 1 bp wider last week
- Spreads are 2 bps wider over the past month, 2 bps tighter YTD
- Spreads on seasoned collateral can be higher, more premium risk though
- Secondary pieces move quickly when available
- SBA Floating 7(a) Pool speeds released (8/13)
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- Prepayments picked up, more so in longer real-estate pools
- NFIB Small Business Optimism Index declined in most recent survey
- Single biggest issue remains quality of labor
- 49% report having job openings they are unable to fill, breaking a 48-year record
- Inflation concerns eased but remain elevated
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- Agency MBS spreads were tighter, 15-year 5 bps tighter and 30-year 2 bps tighter
- Freddie Mac PMMS shows mortgage rates +/- 1 bp from prior week
- 30-year rate at 2.88% (+1 bp from prior) | 15-year rate at 2.19 (+1 bp from prior)
- YTD — 30-year is + 21 and 15-year is +2 bp
- 30-year is +23 from all time low on 1/7/21 of 2.65
- 15-year is +9 from all time low on 8/5/21 of 2.10
- Agency CMOs spreads unchanged from prior week
- SBA DCPC spreads 1 bp wider last week
- Municipals
- BQ Munis, 5-year 3 bp wider, 10-year 11 bps wider, 15-year 12 bps wider
- GM Munis, 5-year 4 bps tighter, 10-year 2 bps tighter, 15-year 1 bp tighter
- Taxable Munis, 5-year 2 bps wider, 10-year 5 bps tighter, 15-year 11 bps tighter
- Corporates
- A-Rated Corporates – 2-year unchanged, 5-year 2 bps tighter, 10-year 1 bp tighter
- Vining Sparks Interest Rate Products
- Commercial loan originations and hedging activity appear to be picking up
- Swapping longer, fixed-rate municipal bonds to floating is still popular
- Today, we look at derivatives as enhancing the offense, defense, and special teams of a bank
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
WSJ: Democrats Release Details of Proposed Tax Increase
“In several areas, the committee proposed tax increases that weren’t as far-reaching as the Biden administration. It didn’t include a provision opposed by banks that would have required annual reporting on account flows to the Internal Revenue Service. The House plan doesn’t change the income-tax rules that allow unrealized capital gains to go untaxed at death. Rural Democrats had opposed that administration capital-gains plan, and its chances of becoming law are looking slimmer.”
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: Strategic Insight: CU Risk-Based Capital Update
After having been delayed multiple times, the NCUA’s risk-based capital provisions finalized in 2015 (2015 Final RBC Rule) are currently scheduled to go into effect January 1, 2022. The 2015 Final RBC Rule only applies to federally insured credit unions with assets greater than $500 million. Institutions with less than $500 million in assets are exempt from the 2015 Final RBC Rule.
Vining Sparks: Coronavirus Chartbook and Coronavirus State Charts