Fixed Income Recap

Treasuries
February was a huge refunding month and the market is certainly taking a depth breath as it all comes to an end. Concerns over supply should subside for now as March’s schedule appears relatively light.

Treasuries were mixed today as the long end of the curve underperformed the shorter. The two-year traded up one-eighth of a point while the ten-year was lower by about a quarter as the benchmark curve steepened by 11 basis points today and stands 17 basis points steeper for the week. A basis point represents .01%.

MBS
Mortgages continued to outperform comparable Treasuries today, tightening 2 basis points.

Higher coupon MBS are outperforming lower coupons as many analysts are paring back their expectations for refinance activity. The programs established by the Obama administration, (easier LTV standards and subsidized rates), are certainly going to speed things up, however some analysts on the street believe the boost to refinancing will be short lived. Higher coupon mortgages, which trade at high premiums, underperformed lower coupons a month ago when the market expected prepays to skyrocket. Now that expectations are reversing a little, the market is just adjusting.

Have a great evening.

Cliff J. Reynolds Jr.
Junior Analyst