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Friday, September 18, 2009

Fixed Income Recap


Treasuries were lower across all maturities yesterday highlighted by the announcement of $112 billion in note issuance next week. The curve flattened 3.7 basis points to finish the day at +244.6 bps – 10-year TIPS breakevens tightened to 1.83% but still remain in the top half of the recent range.

Indirect bids, which include foreign central banks, have been propping up these auctions as of late, which can be seen as a positive… as long as it stays. It has become the trend for bonds to selloff pretty heavy on the supply announcements, only to rebound on strong demand after yields are juiced by the prior week’s price action.

There is no economic data this morning but The Federal Open Market Committee will meet next week and release their decision on the Fed Funds Target Rate on Wednesday, along with the Committee’s statement from the meeting. I mentioned a few days ago the there is some speculation that more than one voting member will push for a hike in the target rate this go around. The market isn’t assigning much worth these rumors either – the futures market that assigns probabilities to different Fed decisions is pricing a 100% chance the committee leaves the rate unchanged. The same market has a 5% chance of a hike to .5% by the next meeting in November. Next week’s meeting will also be the last time the Fed has a chance to comment on the finale of the Treasury and MBS purchasing campaigns. I don’t expect much excitement on this front, but you never know.

Cliff J. Reynolds Jr., Investment Analyst

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