Fixed Income Recap

FDIC Insured Corporate Bond Issuance Accelerates
As of today, $62.5 million has been issued under the Temporary Liquidity Guarantee Program instituted by the FDIC late last month. Wells Fargo, Morgan Stanley and Regions Financial are among the banks that have joined Goldman Sachs, who was the first to opt into the program.

The new market created with this facility has been very well received. The issues have been bid well at auctions and spreads remain stable. They continue to trade in the open market about 30 basis points over comparable agencies, or about 2.9% for 3 years.

Bills Trade at a Premium
Yields on Treasury Bills have remained at or close to zero for the past few weeks. Treasury Bills are traditionally the safest debt instrument on the market, so it isn’t uncommon to see them trading at very low yields when investors become very sensitive to risk. But for bills, which normally trade at discounts and mature at par, to trade at a premium makes absolutely no sense. Four week bills traded as high as 100.12 today, or negative 5 basis points in yield terms. Investors paying a premium for Treasury Bills are choosing to forfeit some of their principle in exchange for the US Treasury name. Why these people aren’t just staying in cash I do not know.

Treasuries Rally
Treasuries continue to trade near record low yields. With the 2-year at .84% and the 10-year at 2.64% the curve has flattened to 179 basis points from its recent multi year high of 262 basis points on November 11th.

Deflation worries have seemed to subside as of late. If more investors adopt the view that inflation is coming, as a result of the fed pumping large amounts of liquidity into the financial system, then look for the long end of the curve to sell off and the steeper curve to return soon.

Cliff J. Reynolds Jr.
Junior Analyst