Fixed Income Recap

Treasuries
The two-year finished the day down 1/32, and the ten-year was higher by 15/64. The benchmark curve was seven basis points flatter on the day, and currently sits at +191 bps. A basis point represents .01%.

$35 billion of three-year Treasury notes were auctioned today with a bid to cover ratio of 2.42 and a yield of 1.385%. The yield on the three-year dropped 10 bps after the rally in stocks was erased by the release of the FOMC minutes at 1pm Saint Louis time. Although equities rallied to end the day up 1%, Treasuries remained strong throughout the afternoon.

FOMC Minutes Released
The minutes from the Federal Open Market Committee’s March 18th meeting were released this afternoon. The minutes detail the discussions behind the Fed’s decision to boost purchases of agency Mortgage Backed Securities from $500 billion to $1.25 trillion, purchase $200 billion in agency debentures (up from $100 billion), and $300 billion in US Treasuries.

The committee’s projections for GDP growth were reduced “with real GDP expected to flatten out gradually over the second half of this year and then to expand slowly into next year.”

The Fed’s decision to buy Treasuries to bring rates down further was not a unanimous one. Some members voted for “very substantial” increases in open market operation, while others recommended less of an increase. The $300 billion allocated to Treasury purchases was probably on the more conservative side of the discussions, but with rates just about where they were before the announcement on March 18th an increase doesn’t seem out of the question.

Have a great evening.

Cliff J. Reynolds Jr.
Junior Analyst