Fixed Income Recap

Treasuries
The two-year finished the day up 9/64, and the ten-year was higher by 19/32. The benchmark curve was unchanged on the day, and remains at +197 basis points. A basis point represents .01%.

The market will get a break from auctions this week. Next week will be a large week for incoming supply with two-, five-, and seven-year auctions being announced.

Today the New York Fed purchased $7.37 billion in Treasury notes ranging in maturities from 3/31/11 to 4/30/12. They will purchase 4.5 to 7 year notes tomorrow and Treasury Inflation-protected bonds on Thursday.

The Fed is $43.9 billion into a $300 billion Treasury purchasing campaign that is scheduled to be completed by August. With the Treasury curve essentially where it is was before the program (10 yr 2.845% as I write, was 3% before the 3/18 announcement) was announced, much of the street is beginning to feel that more will be needed in order for the Fed to achieve its ultimate goal of lowering rates.

MBS
Lower coupon collateral outperformed by 4/32 on the day with very light trading due to the holiday weekend. Prepayments continue to be volatile and unpredictable, but the market remains fixated on how successful the government’s programs turn out to be.

The national average for a 30-year fixed rate mortgage, as defined by the Mortgage Bankers Association, currently stands at 4.73%. That number could easily be 4.6% or 4.55%, but as I have said before, rates being offered to borrowers are slightly higher due to understaffed mortgage brokers and warehouses not being able to keep up with the added demand for refinancing.

Credit
Corporate bonds performed well today despite equities being relatively flat, (Dow -.32% S&P 500 +.25%). CSJ and LQD were up .43% and .96% respectively today.

Have a great evening.

Cliff J. Reynolds Jr.
Junior Analyst