Fixed Income Recap

Treasuries
The two-year finished the day down 1/8, and the ten-year was lower by 1&1/8. The benchmark curve was 7 basis points steeper on the day, and remains at +194 bps. A basis point represents .01%.

Although the employment numbers were ugly, Treasuries were down at the open and got worse as the day wore on due to renewed concerns over next week’s supply. The Treasury will auction $6 billion of the 10-year TIP on Tuesday, a new 3-year issue on Wednesday and reopen the on-the-run 10-year nominal note.

The Fed will purchase 10-17 year notes on Monday and 1-2 year notes on Wednesday of next week.

Fed Purchase Programs
The Fed purchased $32.9 billion in agency MBS during the period ending Wednesday April 1st. The weekly average has moved to about $32 billion since they announced the increase a few weeks ago, from about $18 billion before the increase.

Fed Chairman Bernanke spoke today about how the Fed purchase programs are having their desired effect. Something that was not possible through the traditional method of lowering the Fed Funds Target Rate.

The Fed’s balance sheet, which stood at $870 billion before the collapse of Lehman Brothers, currently stands at $2 trillion with 45% of that being short term liquidity programs implemented by the Fed. Five Percent of the Fed’s balance sheet consists of loans to AIG and Bear Stearns. The Chairman noted that although some portions of the balance sheet carry more risk than others, the Fed intends to be made whole on all its outlays.

Have a great evening.

Cliff J. Reynolds Jr.
Junior Analyst