Sector Update

September 14, 2020

Treasury yields flattened again last week with longer yields down more than shorter maturities. The 2-10 spread closed 3 bps lower at 54 bps. The 2-10 spread still shows reluctance to remain above/below 50 bps for a meaningful amount of time lately. Also, an interesting nugget from this week’s Agency Update, year-to-date call volume (reported at approximately $350 Billion) is equal to the total call volume from 2017 through 2019!

Stocks, gauged by S&P 500 Index, fell 2.5% (after falling 2.3% the week prior) marking the first time since May the index has fallen for two consecutive weeks. Tech stocks were still under pressure and the NASDAQ entered correction territory early in the week. It ended the week down down 3.3%. Keeping things in perspective, the NASDAQ is still up approximately 23.5% this year while the S&P and Dow are +5% and -1.8% in the same time frame.

So far this morning, equities have put a good dent in erasing last week’s declines. Treasury yields are down 1bp on 7+ year maturities as the curve continues to grind tighter.

This Morning

Food for Thought – Prepay Protection Update

Speeds were released last week on mortgage pools (see Prepay Commentary here) and I thought it’d be helpful to update a chart we’ve featured here before. It’s no surprise that prepayments have increased on mortgages this year as interest rates have declined significantly. However, there are pockets of “prepay friction” investors continue to consider. If we look at a group of mortgages primed for high prepayments (I use FNMA 30-year 3.0 pools issued in 2019 below because they have borrower rates of ~3.88%), we can see that generic “non-spec” collateral continues to prepay at multiples of “spec” pools such as loan balance, 100% NY, and 100% investor pools.

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 (September) | Monthly, 5th business day

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

WSJ: Inflation Pops Up, But Will It Stick Around

“The question now is whether the pickup in inflation is sustained, and a lot of that will depend on how sustainable the rebound in the economy since this spring proves to be.”

Freddie Mac: Mortgage Rates Hit Another All-Time Low

“Freddie Mac…released the results of its Primary Mortgage Market Survey® (PMMS®), showing that the 30-year fixed-rate mortgage (FRM) averaged 2.86 percent, the lowest rate in our survey’s history which dates back to 1971.”

Vining Sparks: Coronavirus Chartbooks

PDF/Mobile: Coronavirus Chartbook (PDF)

Regulatory Links

Federal Reserve: 8/27 Announces approval of updates to its Statement on Longer-Run Goals and Monetary Policy Strategy

Fannie Mae: 8/27 Updated Eight Lender Letters

Fannie Mae: 8/27 Suspension of Foreclosures and Evictions on Single-Family Mortgages Through Year-End

FDIC: 8/26 Agencies Issue Three Final Rules (CBLR, CECL, and Eligible Retained Income)

FDIC: 8/25 Quarterly Banking Profile Released (2Q 2020)

FHFA: 8/25 Adverse Market Refinance Fee Implementation now December 1

FDIC: 8/20 Webinar: Loan Forgiveness and Other Relative PPP Matters (FIL-77-2020)

Federal Reserve: 8/19 Minutes of the Federal Open Market Committee, July 28-29, 2020

SBA: 8/13 SBA Announces New Reduced 504 Loan Debenture Rates

Fannie Mae: 8/12 Lender Letter LL-2020-12 – New Adverse Market Refinance Fee

Federal Reserve: 8/11 Federal Reserve announces revised pricing for its Municipal Liquidity Facility

Federal Reserve: 8/10 Individual large bank capital requirements, effective October 1

LIBOR Transition Links

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 7/8: ARRC Releases a Tool to Help Firms Move Internal Systems and Processes away from LIBOR

ARRC 6/30: Further Details Regarding Its Recommendation of Spread Adjustments for Cash Products

ARRC 6/30: Recommended Fallback Language for Private Student Loans

ARRC 6/30: Updated Recommended Hardwired Fallback Language for Syndicated Loans

ARRC 6/5: ARRC Welcomes CFPB’s Updated Consumer Handbook and Proposed Rule Facilitating Transition Away from LIBOR

ARRC 5/28: ARRC Welcomes FNMA and FHLMC’s LIBOR Transition Playbook

ARRC 5/27: ARRC Announces Best Practices for Completing Transition From LIBOR

ARRC 4/17: ARRC Announces Its Key Objectives for 2020

ARRC: 4/8:  ARRC Announces Recommendation of a Spread Adjustment Methodology for Cash Products

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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