Fixed Income Recap

The two-year finished down 3/64, and the ten-year was lower by 1 & 33/64. The benchmark curve steepened by 15 basis points, and currently sits at +250 bps. A basis point represents .01%.

The Fed has purchased $123 billion in longer dated Treasuries since it began its current quantitative easing campaign on March 25. The target amount currently stands at $300 billion, but according to the minutes from the April FOMC meeting, some Fed officials are open to increasing that amount.

Primary dealers took those comments into consideration today when they submitted $45.7 billion in Treasuries to be purchased by the Fed, roughly 50% more than the average. Only $7.4 billion on the $45.7 billion were accepted by the Fed. The Ten-year sold off more than a point immediately after the results were announced.

Investors fearing rising rates are eager to dispose of Treasuries in favor of investments that will fare better in an inflationary environment. Dealers called the Fed’s bluff and today’s price action shows how that can backfire.

Have a great evening.

Cliff J. Reynolds Jr., Junior Analyst