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Friday, April 24, 2009

Fixed Income Recap


Treasuries traded around unchanged the whole day on below average volume. The two-year finished up 1/16, and the ten-year was higher by 11/64. The benchmark curve was 1.5 basis points steeper on the day, and currently sits at +199 basis points. A basis point represents .01%. We are close to the 200 bps mark on the benchmark curve, a level we haven’t been at since March 4th.

Volume likely suffered from traders waiting for tomorrow’s announcement from the Treasury detailing the preliminary results of the stress tests that will include some of the guidelines that are being followed. Some remain skeptical of the validity of the stress tests, but they stand to make a decent impact regardless.

The Treasury auctioned $8 billion of a new five-year Treasury inflation-protected note that came in at 1.278%, well under the yield prevailing in the market before the auction. The issue was bid well, with a bid-to-cover ratio of 2.66, much better than the results of the last two TIPS auctions. The Treasury will auction $40 billion in two-year notes, $35 billion in five-year notes and $26 billion in seven-year notes next week. The new supply, in addition to the stress test announcement tomorrow, could threaten the 3.05% resistance on the ten-year.

The Fed purchased $7 billion in Treasuries with maturities ranging from 5/31/12 to 8/15/13, bringing the total cumulative purchases to $66.7 billion. The Fed again stayed away from benchmark Treasury issues, but successfully bought bonds across the entire range of maturities as planned.

Have a great evening.

Cliff J. Reynolds Jr., Junior Analyst

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