Fixed Income Recap

Treasuries
Treasuries were down across the board today as the long end of the curve underperformed shorter Treasuries. The two-year traded down one-eighth of a point while the ten-year was lower by about 1.25 points in price as the benchmark curve steepened by 5 basis points. A basis point represents .01%.

MBS
Mortgages outperformed comparable Treasuries on Wednesday, tightening 7 basis points to remain at the bottom of the range we have established. I would expect FNCL 5’s, 30-year Fannie Mae 5% MBS, to maintain a spread over Treasuries of about 145 to 160 basis points for the next couple weeks.

Municipals
Highly rated municipal bonds have tightened in considerably and many cities, counties and states in all parts of the country are taking advantage of the opportunities at these lower rates. I would expect AA- rated or better munis to tighten more from here.

From an investor’s perspective shorter munis still look attractive on a relative basis, assuming the investor is in the top tax bracket for tax exempt issues. For investors who can take additional liquidity risk in smaller blocks, odd-lot munis look especially attractive.


Have a great evening.

Cliff J. Reynolds Jr.
Junior Analyst