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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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
Treasury rates dropped last week, reversing the previous week’s selloff and pushing yields significantly lower. The 10-year yield ended Friday at 1.723%, dropping by about 17 basis points on the week, although it remains well above the 1.46% level last seen immediately after the Labor Day holiday. The Treasury yield curve (2-10s) flattened by about 6 basis points to just inside +4 basis points, while the 2-5 spread further inverted to -8.5 basis points. The continued volatility of the market was reflected in the 40-day trailing daily standard deviation of the 5- and 10-year Treasury notes, which reached 6 basis points by Friday, its higher level since mid-2015.read more
Treasury yields shot higher last week, rising by 25-35 basis points to leave the 10-year yield just inside of 1.90%. The Treasury yield curve also steepened noticeably, as the 2-10 year spread widened by almost 8 basis points while the 2-5 year spread, while still negative, improved by about 6 basis points. While other sovereign yields also moved higher, the selloff in US Treasuries was more pronounced; as an example, the spread between the US and German 10-year notes widened by about 20 basis points week/week. Despite the selloff, the Fed Funds futures market continues to trade as if a cut in the target rate is a virtual certainty at the OMC meeting this week, with a projected 95% probability that the target range will move to 1.75-2.0%.read more
After bottoming out after the Labor Day holiday, Treasury yields rose later in the week on a combination of equity market strength, optimism on renewal of trade talks with China, and a fairly strong Employment report. The 10-year yield closed 6 basis points higher to end the week at 1.56%, while the 2-year rose by just under 4 bps, leaving the 2-10 spread at +2 bps. Despite last week’s move (as well as this morning’s continued upward push in rates), the Fed Funds futures market suggests that a Fed rate cut is fully priced in for the 9/18 meeting. This is meaningful because money market rates remain significantly higher than Treasury yields, as highlighted by the chart below, and is one of the factors that has pushed TBA carry lower (and many rolls into negative territory). It’s likely that more cuts in the Fed Funds target rate will serve to pressure money market rates lower.read more
Treasury rates plunged last week after the announcement of a cut in the Fed Funds target rate on Wednesday was followed by an escalation of the trade fight between the U.S. and China. While the entire Treasury curve rallied, intermediate and long Treasuries had the best performance, with yields dropping between 19 and 22.5 basis points week/week. The rally left the 2-10 year spread at +13.4, its tightest level since last December, while the 2-5 year spread inverted again and closed the week at around -5.5 bps. Money market rates were mixed, however, as 1-month LIBOR was virtually unchanged while SOFR (a market-based overnight rate) went from 2.41% on 7/26 to a high of 2.55% on July 31st (possibly distorted by month-end pressures) to end up at 2.19% on Friday. Overseas rates also plunged, leaving the entire German sovereign curve (including their 30-year bond) at negative yields.read more
The Treasury market meandered around last week, although the week/week changes belied some noteworthy mid-week price volatility. The 10-year note ended the week yielding 2.07%, only about 1.5 basis point higher than its 7/19 close, but the note’s yield ranged from a low of 2.045% to a peak of 2.082%. The yield on the 2-year note was somewhat steadier, although it popped by about 5 basis points on Thursday, leaving the 2-10 year spread just under 2 basis points flatter at +21.7 bps.read more