MBS MARKET COMMENTARY
MCT’s Director of Analytics, Bill Berliner, writes a weekly summary of movements in the secondary market. The analysis includes an in-depth view of treasury yields, mortgage backed securities, note rates and more.
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The targeted killing of a key Iranian general put a stop to the bearish steepening that prevailed through much of December. Friday’s rally pushed the yield on the 10-year note to its lowest level in a month, closing at 1.78% after printing as high as 1.93% over the holiday period. The yield curve (i.e., 2-10s) ended the week about 3 basis points flatter at +26 after reaching as high as +34 on New Year’s Eve, its steepest level since the summer of 2018.read more
Intermediate and long Treasury yields backed up last week to levels last seen in early November. The 10-year Treasury yield ended the week at just below 1.92%, almost 10 basis points higher on the week. While shorter-maturity bills and notes also sold off, their yields only rose by between 2 and 4 basis points, leaving the yield curve significantly steeper; the 2-10 year spread closed at +29, its widest level since June 21st of this year. The long-end selloff was driven both by a rise in real yields (i.e., rates without an inflation component, proxied by the 10-year TIPS yield) and a pickup in long-term expectations for inflation, with the 10-year TIPS break-even rate increasing by 6 basis points to 178 bps, its highest level since late July.read more
Treasury yields ended the week modestly higher, following a sharp rally earlier in the week. Surprisingly, Friday’s surprisingly strong employment report only pushed yields 2-3 basis points higher, while Fed Funds futures indicate a 40% likelihood of a Fed easing by the 6/10/20 meeting, down from a roughly 50% chance earlier in the week. The 10-year yield closed on Friday at just under 1.84%, about 6 basis points higher on the week, while the yield curve steepened; the closely-watched 2-10 spread widened by roughly 7 basis points to +22 bps, while the 2-5 year spread moved wider by about 3 bps. It is noteworthy that the yield curve has become significantly less “bowed” than it was in September and October.read more
The Treasury market was fairly quiet last week, with yields changing only modestly from the prior Friday. The 2-10 spread steepened by a couple of basis points to +16 bps, while the 2-5 year spread moved back into positive territory.read more
The Treasury curve underwent a notable bull-flattener trade last week, as short interest rates moved higher while intermediate and long Treasury yields dropped. The 10-year note closed at a 1.77% yield last week, a week/week decline of 6 basis points, while the yield on the 2-year note rose by just under 2 basis points to 1.63%. The yield curve “twist” left the 2-10 year spread flatter by 8 basis points, while the 2-5 year spread re-inverted (by a half basis point).read more
Treasuries rebounded last week, as the longer end of the yield curve recovered some of the ground lost earlier in the month. The yield on the 10-year note declined about 11 basis points on the week, closing at 1.83%, while the 5-year yield dropped by just under 10 bps. The rally in long Treasuries primarily reflected a re-assessment by traders of potential future inflation risks, as the 10-year TIPS break-even declined by 9 basis points.read more
Treasuries yields were lower at the end of a fairly volatile week. Bonds began the week with two straight sessions of lower prices, but bounced back after Wednesday’s rate cut by the Fed, along with what was viewed as a dovish press conference by Fed Chairman Powell. Despite a relatively strong employment report on Friday, the yield on the 10-year note ended the week about 8.5 basis points lower, while the best performer on the “coupon curve” (i.e., coupon-paying Treasury notes and bonds) was the 30-year bond, the yield of which dropped by about 10 basis points on the week.read more
Treasury yields continued their relatively slow back-up this week, leaving the yield on the 10-year note at its highest level since mid-September. The 10-year yield has moved about 27 basis points higher since early October, and closed just shy of the 1.80% level. The Treasury selloff also took place amid a backdrop of declining volatility; the 40-day standard deviation of the 5- and 10-year notes’ daily changes has dropped roughly a full basis point since late September. The uptick in rates also left the entire Treasury curve into positive-sloping territory, with the closely-watched 3mo/10-year and 2-year/10-year spreads at +16 and +17, respectively.read more
Treasury markets were fairly quiet last week, leaving the yield on the 10-year at 1.755% at Friday’s close, up about 2.5 basis points on the week. The yield on the 2-year note declined modestly on the week, leaving the 2-10 year spread (which closed at +18 basis points) at its widest level since late July. The relatively placid trading after the end of the third quarter is reflected in the realized volatility of the 5- and 10-year Treasury notes; as highlighted by the accompanying chart, the 40-day standard deviation of both notes has declined by almost a full basis point over the last few weeks. (For context, this equates to a difference in daily price changes of about 3/32nds on the 10-year note. It’s also notable that the standard deviations remain high relative to their levels in 2016, which reflected both the summer Brexit vote and the Presidential election.) The money markets appear poised for another Fed easing at the 10/30 meeting, with the Fed Funds futures market projecting an 87% probability of a 25 basis point cut in the funding target range.read more
Treasury yields moved lower last week, reflecting growing concerns over the economic outlook as well as equity market woes. The yield on the 10-year Treasury note declined by 15 basis points on the week, while the 2-10 Treasury spread widened by about 7 basis points to +12 bps. The rally in Treasuries was a bit aberrant compared to other sovereign debt, as yields for the major European countries, as well as Japan, were little changed on the week. The Fed Funds futures market currently projects around a 70% chance of an easing at the next Fed meeting on 10/30, up from less than a 50% market-implied probability at the end of September.read more