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Rates Update

Published December 10, 2018  /  In Weekly Market Updates

Last Week's Market Moves

The Labor Department reported today 155,000 jobs were added to U.S. non-farm payrolls in November, below the forecast of 198,000. The unemployment rate held steady at 3.7% and wage growth was unchanged from last month as average hourly earnings rose at an annualized rate of 3.1%. The unemployment rate continues to stay at a multi-decade low.
Even with non-farm payrolls missing the forecast, a Federal Reserve hike in interest rates is still highly likely this month with the market forecasting a 75.7% probably of another increase. However, recent news and concerns of a possible economic slowdown seems to have given the Federal Reserve some pause in continuing to increase rates into 2019 at their current pace. Investors have begun to question the long term strength of the U.S economy amid ongoing trade tensions and global growth concerns.
As a result, we have witnessed significant declines in equity prices over the last week along with a drop in interest rates. The DJIA fell almost 800 points this past Tuesday and as of mid-day today the has DJIA and S&P 500 Index have both fallen another 1.5%. Technology stocks have especially taken a beating with share prices down about 25% from their market highs.
U.S Treasury yields have also fallen significantly as the benchmark ten year Treasury yield is at 2.87 percent hitting a 3 month low. We view these declines as a window of opportunity to hedge at attractive rates. We continue to expect higher interest rates over the extended long term but view this period of significant volatility as an opportunity.


What to Look for This Week

Expect market volatility to continue over the near term given ongoing trade tensions between the U.S and China, Brexit and the U.S.  political landscape essentially in turmoil. The Mueller investigations continue and reports today indicate that President Trump’s Chief of Staff John Kelly is expected to resign in the next couple of days.
Interesting Note of the Week
If you were like me growing up in the United States in the 1970’s to long lines at the gas pumps and oil shortages, you will especially take note that it was reported today that the United States has officially become a net oil exporter for the first time in 75 years.  What a difference a year makes, well; a few years.


1-month LIBOR Swap Rates**

MaturityAmortizationSwapMove
3 YearsBullet2.85%-14 bp
5 YearsBullet2.82%-17 bp
7 YearsBullet2.85%-16 bp
10 YearsBullet2.90%-16 bp
12 YearsBullet2.94%-16 bp
15 YearBullet2.98%-16 bp
20 YearBullet3.00%-16 bp

Treasury Market

TreasuriesYieldMove
2 Years2.71%- 8 bp
3 Years2.71%- 9 bp
5 Years2.69%-11 bp
10 Years2.85%-14 bp
30 Years3.14%-15 bp
Move signifies change in swap rates or treasuries since 11/30/2018

**Note: Rates above are mid-market swap rates as of NY market close 12/7/2018. 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.