September 3, 2019
We are publishing broad market commentary today due to the holiday-shortened week. Individual sector updates will return next week.
Last week, the yield curve flattened, continued inverting really, for the second week in a row. The curve, measured by the much-watched spread between 2- and 10-year maturity Treasurys, closed out the week negative. This morning, yields opened firm to where they closed on Friday. However, after a poor ISM Manufacturing reading, yields are under pressure with maturities between 2- and 10-years down another 5-6 bps.
If you follow along in the Market Today or Weekly Recap, we have a number of important economic readings this week in conjunction with Fed Speakers on tap as we approach the start of their quiet period, this Saturday, prior to their next meeting the week of the 16th.
With so much volatility, and the potential for more, one strategy is to look at investments, within your risk tolerances, that perform well in a range of +/- 50 to 100bps. The Investment Alternatives Matrix provides a convenient means to perform this analysis. An updated version will be available this afternoon and if you have any questions or want more tailored input, please don’t hesitate to reach out.
- Agency Bullet spreads were unchanged.
- Agency Callables were unchanged on the week.
- Corporates were 1 bp tighter on short maturities.
- Munis tightened at 5- and 15-year maturities and 10-year was +4 bps.
- CMOs were 2 bps tighter in 2- and 5-year WALs.
- MBS were tighter; the 15-year by 2 bps and 30-year by 3bps.
What We’re Reading
Market Today | Daily
Weekly Recap | Weekly, Friday
Investment Alternatives Matrix | Weekly, Tuesday
MBS Prepay Commentary (August) | Monthly, 5th business day
SBA Prepay Commentary (August) | Monthly, 10th business day
“When Treasury yields tumbled in August, asset managers who invest in mortgage-backed securities saw the duration of their holdings drop. To compensate for that, they would have had to add duration elsewhere.”
“The rally that swept through the Treasury market in August is the strongest since the depths of the 2008 crisis. This insatiable demand for the safety of bonds faces a reality check in the days ahead.”