Weekly Commentary
Capital Markets Review — March 12, 2010
KANSAS CITY (800) 548-2663 ST. LOUIS (800) 392-2252 WICHITA (800) 365-0349
Current Coupon Mortgage vs 10 Year
Market Comment
A tame week ends with both the 2yr and 10yr treasuries resting in the high end (yield) of their respective 2010 trading ranges (.76% - 1.06% on 2s & 3.56%-3.83% on 10s). The market absorbed ~ $75bln in 3yr, 10yr and 30yr treasury auctions without resistance. With a paltry economic calendar and a quiet international front, bonds took their queue from stocks for most of the week. That too provided little direction, with the Dow up just 60 points. Eyes appear to be focused on next week’s FOMC meeting. Attention will also be given to PPI, CPI and Leading Indicators, all to be released next week.
Despite the Fed’s mortgage purchase program coming to and end in a couple of weeks, and the news of 120+ day delinquent buyouts, spreads on current coupon mortgages have reached incredibly tight levels. On Wednesday, the current coupon mortgage index rallied to just 58bps over the 10yr treasury. That’s approx 15bp tighter than we were just 10 days ago. Mortgage market participants are scrambling to buy well structured CMO product as well as Pass Thru’s with sound stories (seasoning, loan balance, etc..).
The major theme this week in municipals was also spread tightening. Despite a decent supply in offerings and bonds out for the bid, little action has occurred. Clean local credits seemed to highlight an investor preference for better yield in 10yrs to 15yrs, while shorter in the curve rich relative value ratios versus taxables and extremely tight spreads are keeping buyer involvement low.
Mark Mower, AVP, Mortgage Trading
Calendar
| Monday | Tuesday | Wednesday | Thursday | Friday |
|---|---|---|---|---|
| 15-Mar | 16-Mar | 17-Mar | 18-Mar | 19-Mar |
| Industrial Production | ABC Consumer Confidence | Leading Indicators | ||
| 3&6 Mth Auc Settle 03/18 | Housing Starts | MBA Mortgage Applications | Initial Jobless Claims | |
| Capacity Utilization | FOMC Rate Decision | Producer Price Index | Consumer Price Index |
Market Information
Key Indices |
|||
| Current | Last Month | 1 Yr Ago | |
| Prime Rate |
|
3.25 |
3.25 |
| Discount Rate | 0.75 |
0.50 |
0.50 |
| Fed Funds | 0.15 |
0.13 |
0.20 |
| 1-Mth Libor | 0.23 |
0.23 |
0.57 |
| 11th Dist Cofi | 1.79 |
1.83 |
2.46 |
| 1-Yr Cmt | 0.40 |
0.38 |
0.71 |
| Dow | 10,611.80 |
10,144.20 |
6,930.40 |
| Nasdaq | 2,368.46 |
2,177.41 |
1,371.64 |
| S&P 500 | 1,150.24 |
1,078.47 |
721.36 |
| Bond Buyer | 4.33 |
4.36 |
5.03 |
| Municipal New Issue Calendar | |||
| Date | Amount | Description | Maturity |
3/16/10 |
$2,795,000 | Clay Center KS BQ | 2012-2020 |
3/16/10 |
$4,055,000 | Haysville KS | 2011-2030 |
Comparative Spreads
| New Issue Agencies | Muni | |||||
Treasuries |
Bullets |
NC 6 Mon |
NC 1 Yr |
NC 2 Yr |
AA - BQ |
|
| 3 Mon Bill | 0.14 |
0.20 |
||||
| 6 Mon Bill | 0.21 |
0.25 |
||||
| 1-Yr Treas | 0.39 |
0.30 |
||||
| 2-Yr Note | 0.94 |
9 |
22 |
22 |
0.65 |
|
| 3-Yr Note | 1.49 |
19 |
38 |
35 |
28 |
1.00 |
| 5-Yr Note | 2.39 |
27 |
57 |
53 |
42 |
1.60 |
| 7-Yr Note | 3.13 |
28 |
52 |
49 |
39 |
2.45 |
| 10 Yr Bond | 3.69 |
40 |
58 |
55 |
46 |
3.05 |
| 30 Yr Bond | 4.62 |
4.40 |
||||
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