Fixed Income Recap

Treasuries Rally
U.S. Treasuries were higher across the board today on thin trading, despite the gains in the stock market. The two-year ended the day at .73% while the ten-year closed at a yield of 2.06%.

The yield curve has steepened 9 basis points this week to 179 basis points, after flattening considerably over the last month. Like stocks, Treasuries continue to be range bound in an environment where volume is very light and most desks are waiting out the end of the year.


Fed MBS Purchasing Program
Goldman Sachs, Blackrock, PIMCO and Wellington Management were announced as managers for the Federal Reserve’s $500 billion MBS buying program. Actual purchases are expected to start in early 2009 and be completed by June. Only, Fannie Mae, Freddie Mac and Ginnie Mae fixed-rate mortgage-backed securities are eligible for the program.

The market has already begun to price these purchases in, which has significantly lowered fixed rate mortgage yields over the past few weeks. The market is hopeful that the demand from the Fed will spill over to new mortgage originations and continue to re-establish confidence in the overall mortgage backed securities market.

Cliff J. Reynolds Jr.
Junior Analyst