Rates Update

Published March 22, 2019  /  In Weekly Market Updates

Last Week's Market Moves

The Federal Reserve on Wednesday as expected left its policy rate unchanged in a range between 2.25% and 2.5%. Chairman Jerome Powell suggested they are unlikely to raise interest rates this year reversing a trend that began more than three years ago. Treasury markets reacted immediately with the benchmark 10 Year Treasury yield falling to its lowest level since January of 2018. The Fed also announced that in May it would slow the pace at which it is shrinking its $4 trillion asset portfolio and end the runoff of its Treasury holdings. The Central Bank cited mild inflation pressures, a sharp pull back in risk-taking and recent challenges to further economic growth.
European leaders allowed Britain to postpone the Brexit deadline beyond next week. The agreement gives Prime Minister Theresa May and the British Parliament some breathing room as had there been no extension, the U.K. risked a disorderly exit from the European block next Friday. E.U. officials still want an orderly exit, but many leaders have expressed privately the increased likelihood of no deal.
Global stocks and bond yields slid today as investors reacted to weak manufacturing data from Europe. A report showed factory output in the eurozone fell in March to at a rate not seen in the past six years. Germany’s 10-year bond yield fell into negative levels for the first time since October of 2016 and the year on the 10 Year Treasury falling to 2.44%, a fresh low on the year. 

What to Look for This Week

Many investors in the U.S. still believe an imminent recession is unlikely. Corporate earnings are slowing but are still forecast to post single digit growth this year, according to FactSet. The labor market continues to add jobs, unemployment remains low and wages have been increasing. However, Federal-funds futures, used by many traders to keep abreast of monetary policy, shows the market pricing in a 50% chance of the Fed lowering rates by the end of this year, according to the CME Group.
As we mentioned in other posts, Interest Rate swaps currently offer investors an inexpensive risk management option. The Fed has raised short term funding costs over the last five years by approximately 225 basis points while the 10-year Treasury has still consistently traded between 2.5-3.0%, diminishing returns of fixed rate assets. The cost today to swap a 10-year fixed rate loan to floating has dropped significantly from levels several years ago.
Quote of the Week we like:
“If all economists were laid end to end, they will still not reach a conclusion”
G.B. Shaw

1-month LIBOR Swap Rates**

3 YearsBullet2.43%- 7 bp
5 YearsBullet2.39%- 8 bp
7 YearsBullet2.44%- 8 bp
10 YearsBullet2.53%- 1 bp
12 YearsBullet2.60%- 8 bp
15 YearBullet2.66%- 8 bp
20 YearBullet2.71%- 8 bp

Treasury Market

2 Years2.42%- 5 bp
3 Years2.34%- 9 bp
5 Years2.34%- 9 bp
10 Years2.54%+ 2 bp
30 Years2.97%- 5 bp
Move signifies change in swap rates or treasuries since 3/13/2019

**Note: Rates above are mid-market swap rates as of NY market close 3/21/2019. All rates are subject to change. Dealer pricing may include additional swap fees, contact PRM for swap pricing analysis and a detailed report on pricing, pre-payment risk and swap fees.

Disclaimer: The purpose of this communication is to provide general information and estimates as of swap pricing for indicative purposes only. To obtain an independent swap quote and swap risk evaluations for a specific financing please call PRM Swap Desk with the terms of the proposed transaction. PRM offers independent pricing for interest rate swaps, caps, floors, swaptions as well as analysis of swap, fixed rate loan and insurance loan pre-payment risk.