Treasuries
Treasuries sold off heavily for the second consecutive day. The two-year finished down 4/32, and the ten-year was lower by 31/32. The benchmark curve was 4 basis points steeper on the day, and currently sits at +197 basis points. A basis point represents .01%.
Interest rates moved higher today on a strong equity market and a rush of shorts coming in to hedge against next week’s corporate bond supply. Bond issuers often short Treasuries when they announce an upcoming bond issue to hedge against rates moving higher before the issue is priced. Higher rates mean higher debt servicing costs (making coupon payments), so if rates move higher before their issue is priced by the market they will be at least be partially compensated for the fall in bond prices through the hedge. Remember bond prices move inversely to rates.
Next week will be big in terms of Treasury auction announcements so some rate volatility can be expected.
Fed Agency Purchases
The Fed purchased $3.07 billion in Fannie Mae, Freddie Mac and Federal Home Loan Bank debentures today ranging in maturities from 10/15/15 to 7/15/32. The auction met the market’s expectations and agencies more or less tracked Treasuries downward throughout the day.
Have a great evening.
Cliff J. Reynolds Jr., Junior Analyst
Treasuries sold off heavily for the second consecutive day. The two-year finished down 4/32, and the ten-year was lower by 31/32. The benchmark curve was 4 basis points steeper on the day, and currently sits at +197 basis points. A basis point represents .01%.
Interest rates moved higher today on a strong equity market and a rush of shorts coming in to hedge against next week’s corporate bond supply. Bond issuers often short Treasuries when they announce an upcoming bond issue to hedge against rates moving higher before the issue is priced. Higher rates mean higher debt servicing costs (making coupon payments), so if rates move higher before their issue is priced by the market they will be at least be partially compensated for the fall in bond prices through the hedge. Remember bond prices move inversely to rates.
Next week will be big in terms of Treasury auction announcements so some rate volatility can be expected.
Fed Agency Purchases
The Fed purchased $3.07 billion in Fannie Mae, Freddie Mac and Federal Home Loan Bank debentures today ranging in maturities from 10/15/15 to 7/15/32. The auction met the market’s expectations and agencies more or less tracked Treasuries downward throughout the day.
Have a great evening.
Cliff J. Reynolds Jr., Junior Analyst
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