The curve has flattened 17 basis points this week to 147 basis points from 164 at the close of business last Friday. The 2-year was mostly unchanged on the day to yield .715% and the 10-year rallied slightly to yield 2.19%.
Mortgages
Mortgages continue to be volatile during this period of Fed induced liquidity. The 10 year Treasury has rallied while mortgages have sold off. This inverse movement has resulted in yields on mortgages being 20 basis points wider on the week.
The New York Fed announced today that it bought $23.4 billion in mortgages during the period from January 8 to January 14. Considering that the Fed plans on buying $500 billion before the end of June, this is closer to the expected average than the $10.2 billion reported last period.
Treasuries
The main concern with Treasuries deals with the possibility of the Fed buying them in order to push yields lower. Current Fed-speak is leading the market to think that they will likely exhaust other options before accelerating their buying of Treasuries in the open market, but uncertainty remains. They appear to be content with waiting to see how the current programs, (i.e. commercial paper, Freddie and Fannie debentures and MBS), may help lower rates.
Friday is a half day in the bond market.
Have a great evening.
Cliff J. Reynolds Jr.
Junior Analyst
Friday, January 16, 2009
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