Sector Update

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.


Spread Commentary

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


WSJ: One Obscure Reason for August’s Big Bond Rally: Negative Convexity

“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.”


Bloomberg: Gut Check Time for Treasuries After Biggest Rally Since 2008

“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.”

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