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 financial markets ended an incredible week with Treasury yields reaching new lows. The 10-year note at a yield of 1.15%, over 20 basis points lower than the previous low hit in the weeks after the 2016 Brexit vote. The 3-month/10-year spread further inverted by about 8 basis points to close around -11 basis points, while the 2-year/10-year spread expanded by 12 basis points to +23, its widest level since early January of this year.read more
Treasuries steadily rallied last week, with the 10-year note ending the week yielding 1.472%. The drop in yields, triggered by fears that the coronavirus was spreading outside of Asia, was focused in intermediate and long maturities, and left the yield on the 30-year bond at an all-time low 1.915%. The 2/10 year spread ended the week about 4 basis points flatter, while the 3mo/10 year spread inverted to close at -5 basis points. The yield on the 10-year TIPS (reflecting the expected long-term real rate) declined by 6.5 basis points, while the TIPS breakeven level (a proxy for projected inflation) also dropped by about 5 bps.read more
Treasury yields rebounded last week, although the market paradoxically rallied on Friday despite a relatively strong employment report.read more
Treasury yields plunged last week amid fears that the fast-spreading coronavirus would disrupt global trade and economic activity. With U.S. equities off by about 2.5%, the 10-year yield dropped by almost 18 basis points to end the week at 1.508%, breaching its early October lows and getting within 5 basis points of the late-summer trough. While yields for coupon-paying securities declined pretty much in unison, Treasury bill rates actually rose slightly, leaving the 3mo/10-year spread slightly inverted even though the 2/10-year spread closed roughly unchanged. Despite the Fed’s fairly neutral statement after their Open Markets Committee meeting on the 29th, the Fed Funds futures market is currently projecting a 25 basis point rate cut by as early as the June or July meetings, and two easings by the end of 2020.read more
Treasury yields dropped last week, as concerns about the spread of the coronavirus and its economic impact grew. The yield on the 10-year note declined by about 14 basis points from the prior Friday to yield 1.685%, with the rally concentrated in intermediate and long maturities. This left the yield curve markedly flatter, with the 3mo/10yr and 2-10yr spreads narrower by 11 and 7 basis points, respectively. The rally also took other sovereign yields lower; the German and French 10-year notes both experienced 12 basis points declines, the latter reaching negative territory for the first time since early December, as highlighted by the accompanying chart.read more
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