Treasuries were mixed today as the long end underperformed for the eighth straight trading day mostly on concerns about supply. The two-year finished the day up 3/32, and the ten-year was lower by 3/32. The benchmark curve was steeper by 5 basis points on the day, and currently sits at +220 basis points. A basis point represents .01%.The Fed bought $3 billion in Treasuries ranging in maturity from 5/15/19 to 2/15/26 bringing cumulative purchases to $76.8 billion or about 25% of the way to their $300 billion target.
The Fed’s decision to leave its purchase agreements unchanged has left its mark on the market for government guaranteed debt. What remains to be seen is what the Fed is really targeting. Mortgage rates seem to be their biggest target so far, and they have dropped 50 basis points since the Fed decided to up their MBS purchases to $1.25 after their March meeting. My hope is that the Fed can be satisfied with mortgages at 4.6% and avoid being concerned with lowering government borrowing costs that are increasing because the supply of Treasuries grossly outweighs demand going forward.
Net Fed purchases of agency MBS during the past week was $23.1 billion. That makes over $400 billion since the program started. Prepayments have certainly picked up with mortgage rates at 4.62%, but we will likely see refinance activity increase from here in the months of May, June and July.
Have a great evening.
Cliff J. Reynolds Jr., Junior Analyst
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