Fixed Income Recap

Treasuries
As expected when stocks have a horrible day, treasuries rally hard. The 30 year was up more than 3 points in price and the curve flattened 10 basis points on the day to 228 basis points. The spread between the yield on the two and ten year has dropped 34 basis points from its high of 262 last Thursday.

MBS
Agency mortgages were mostly unchanged on the day. New issue 30 year passthroughs ended the day flat. Shorter, 15 year collateral, traded down slightly. Mortgages look very attractive here, but volatility is also extreme. Just to put it in prospective, mortgage spreads have had 40 basis point swings over several day periods eight times over the past three months. Incredible!

Credit
Credit spreads widened again today, with banks leading the way this time. Uncertainty of future government aid and a terrible outlook from company executives are driving the cost of default protection up across the board. The likelihood of default is often measured by the cost one must pay to protect a bond against default. These costs are at record highs.


Cliff J. Reynolds Jr.
Junior Analyst