The market did a good job absorbing the final chunk of this week’s supply. $28 billion in 7-year notes were sold to the public at a high yield of 3.092%, just .5 bps under the market at the time of the auction’s end, a sign the market was right on top of this one. Other demand measures also showed strength this time around. Bid/cover was 2.74, a little stronger than the 2.61 average for this maturity, and indirect bidders took down 61.2% of the auction, also a strong number.
Many traders were calling for this to be a tough week in bond land. Treasuries held in there last week in the face of strong performance in equities, and some saw a week with $109 billion in new supply as a potential rough period. Well speculators have been wrong so far, as demand for new paper was much stronger than expected.
A second Fed President has now speculated publicly on whether the Fed will need to complete the MBS purchase program as scheduled. Saint Louis Fed President James Bullard said yesterday when speaking to reporters in Little Rock that completing the program on its current schedule may not be necessary. Even though that’s two Fed Presidents in as many days speaking out against the program, the rest of Open Market Committee does not seem to share the same views. The Fed purchased $25.4 billion in MBS last week, much higher than the $23.35 billion weekly average, and over $25 billion for second week in a row. Purchases dropped off in July, only to speed up again in August as the Fed is scaling back the Treasury program. The Fed will need to average just about $25.5 billion a week in order to finish purchasing the remaining $458 in MBS before year end.
Cliff J. Reynolds Jr., Investment Analyst
Many traders were calling for this to be a tough week in bond land. Treasuries held in there last week in the face of strong performance in equities, and some saw a week with $109 billion in new supply as a potential rough period. Well speculators have been wrong so far, as demand for new paper was much stronger than expected.
A second Fed President has now speculated publicly on whether the Fed will need to complete the MBS purchase program as scheduled. Saint Louis Fed President James Bullard said yesterday when speaking to reporters in Little Rock that completing the program on its current schedule may not be necessary. Even though that’s two Fed Presidents in as many days speaking out against the program, the rest of Open Market Committee does not seem to share the same views. The Fed purchased $25.4 billion in MBS last week, much higher than the $23.35 billion weekly average, and over $25 billion for second week in a row. Purchases dropped off in July, only to speed up again in August as the Fed is scaling back the Treasury program. The Fed will need to average just about $25.5 billion a week in order to finish purchasing the remaining $458 in MBS before year end.
Cliff J. Reynolds Jr., Investment Analyst
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