Thursday, September 21, 2017
MANAGING DIRECTOR: Scott Carrithers   PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Robert Brickson • Kevin Doyle • Lonnie Harris •  Mark Tranckino • Robert Schuyler  Tom Toburen • Josh Kiefer • Nicole Burczyk • Kelley Frye • Natalie Regan • Aaron Stoffer

US Treasury Market
Date	1 mo	3 mo	6 mo	1 yr	2 yr	3 yr	5 yr	7 yr	10 yr	20 yr	30 yr
9/14/17	.99	1.05	1.17	1.28	1.37	1.50	1.79	2.01	2.20	2.52	2.77
9/15/17	.98	1.05	1.17	1.30	1.39	1.53	1.81	2.04	2.20	2.52	2.77
9/18/17	.96	1.05	1.18	1.30	1.40	1.54	1.83	2.06	2.23	2.56	2.80
9/19/17	.97	1.04	1.19	1.31	1.40	1.55	1.84	2.07	2.24	2.57	2.81
9/20/17	.98	1.04	1.20	1.32	1.45	1.60	1.89	2.12	2.28	2.59	2.82

                   

Source: U.S. Department of the Treasury, as of 9/20/17

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The Unwind

Yesterday, it was confirmed that the Fed will begin the anticipated Quantitative Tightening, the unwinding of their $4.5 Trillion balance sheet.  Starting next month as Treasuries and mortgage-backed securities roll-off, they will not reinvest the principal - $6 Billion of Treasuries and $4 Billion of MBS.

Additionally, it was indicated that there is still room for another rate increase this year based on strengthening economic conditions and the feeling that the labor market will continue to strengthen. The market initially reacted with the yield on the 10-Year USTN getting up to a 2.28% about 45 minutes after the meeting, though we are back down to 2.24%.

The flattening of our yield curve illustrated below as the curve in yellow shows the day QE1 was announced (11/25/08) and the green is current.  With shrinking the balance sheet, will we head back to a Nov 2008 curve?  Whereas the front end will likely not if the Fed keeps their overnight rates where they are (or increases) but the back end could come up, thus bringing us back to a pre-QE, normal shape.

Source: Bloomberg, L.P.

As this meeting did not have a huge effect on the market, we still have the opportunity for portfolio clean up.  If in buying mode – cashflowing MBS continue to be a great option for the current rate environment.

 

 

This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

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