Rates Update

Published November 2, 2018  /  In Weekly Market Updates

Last Week's Market Moves

The Labor Department reported today 250,000 jobs were added to U.S. payrolls in October. The continued strong hiring and low unemployment are delivering U.S. workers their best pay raises in nearly a decade. With unemployment holding at 3.7%, a 49-year low, employers are now competing for scarce workers. Wages increased 3.1 percent from a year earlier, the biggest year-over-year gain for average hourly earnings since 2009.
These gains are now attracting people back into the labor force. Both the labor-force rate and the employment-to-population ratio rose by 0.2 percentage points, to 62.9 percent and 60.6 percent, respectively. This is encouraging given both these economic indicators have remaining at low levels for quite some time. Economists expect the U.S economy will continue to outpace other advances economies for some time. The strong reports continue to contrast economic data coming out of China and Europe this last week.
Strong job creation, low unemployment and rising wages should encourage the Fed to stay on its current policy guidance of both future rate hikes and further actions to remove the unconventional monetary measures that have been in place since the economic crisis from 2008.
The strong jobs report drove bond prices lower on Friday. The yield on the benchmark 10-year Treasury note rose the most in almost a month to 3.214% from 3.14% Thursday. The rise in yield of 13.7 basis was the largest increase since the week ending October 5th, when it closed at the yearly high for the year.
We had encouraged investors last week with the need to hedger their rate risk to take advantage of the lower rates. We continue to expect higher rates but with rates still at near historical lows, the opportunity still exists to hedge at attractive rates.
The 1-month LIBOR reset today was 2.31% which puts the premium or cost to hedge amortizing 10-year fixed rate loans at 78 basis points so the spread to LIBOR has dropped 4 basis points from last week.

What to Look for This Week

In almost one word, it’s the midterm elections. With just several days until the elections, the latest opinion polls indicate the Democrats will take control of the House of Representatives and the Republication Party will retain its narrow majority in the Senate. However, after the last presidential election, the opinion surveys could give a misleading impression. Whatever the outcome, except the results to have a major impact on the future direction of the U.S. economy.
Quotes of the Week we like
“If all the economists were laid out end to end, they’d never reach a conclusion.”
George Bernard Shaw

1-month LIBOR Swap Rates**

3 YearsBullet3.17%+ 5 bp
5 YearsBullet3.18%+ 5 bp
7 YearsBullet3.22%+ 8 bp
10 YearsBullet3.28%+ 8 bp
12 YearsBullet3.31%+ 7 bp
15 YearBullet3.34%+ 7 bp
20 YearBullet3.36%+10 bp

Treasury Market

2 Years2.90%+ 5 bp
3 Years2.98%+ 8 bp
5 Years3.03%+ 7 bp
10 Years3.21%+ 9 bp
30 Years3.45%+ 11 bp
Move signifies change in swap rates or treasuries since 10/25/2018

**Note: Rates above are mid-market swap rates as of NY market close 11/2/2018. 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.