Fixed Income Recap

Treasuries
The two-year finished up 1/8, and the ten-year was higher by 7/16 on $2.5 billion in long-dated Treasury purchases by the Fed. The benchmark curve was steeper by 1.5 bps on the day, and currently sits at +186 bps. A basis point represents .01%.

The Fed’s purchases disappointed the market who was expecting more after last week’s fast start to the program. Weakness in equities helped bonds rally (S&P down 3.46%) despite the worse than expected demand from the Fed. (more on this below)

MBS
Agency MBS lagged on quiet trading, widening one basis point to comparable Treasuries. 4.5% Thirty-year TBA (To Be Announced) Pools currently stand at 125 bps over the Treasury curve.

Treasury Purchases by the Fed
Despite Fed purchases last week, the supply of Treasury debt in the market still increased thanks to a big week of auctions. The Treasury’s auction block is inactive this week, giving the Fed its first opportunity to truly decrease the supply of Treasuries in the market. The potential for weak economic data and Fed buying this week, stand to support Treasury prices even at these yields.

Have a great evening.

Cliff J. Reynolds Jr.
Junior Analyst