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Friday, January 26, 2018

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

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
1/19/18 1.28 1.44 1.62 1.79 2.06 2.20 2.45 2.57 2.64 2.78 2.91
1/22/18 1.27 1.44 1.65 1.79 2.08 2.21 2.46 2.59 2.66 2.79 2.93
1/23/18 1.26 1.44 1.63 1.78 2.06 2.18 2.43 2.55 2.63 2.77 2.90
1/24/18 1.25 1.43 1.63 1.79 2.08 2.20 2.43 2.57 2.65 2.80 2.93
1/25/18 1.23 1.42 1.64 1.80 2.08 2.20 2.41 2.55 2.63 2.76 2.89

                                                                                       Source: U.S. Department of the Treasury, as of 1/25/18  

The Citi Economic Surprise Index

Below are excerpts from an article by Dani Burger (Reporter for Bloomberg News) that appeared in Bloomberg on Wednesday of this week discussing the Citi Economic Surprise Index.

“Optimism has peaked, according to two widely followed measures of U.S. economic sentiment. If history is any guide, bouts of equity volatility and plunging Treasury yields will soon follow.

“The U.S. Citi Economic Surprise index -- the rate at which data exceeds analyst expectations -- has started to fall after reaching a five-year high in December. Meanwhile, the Federal Reserve’s index of the public’s uncertainty about the outlook for monetary policy is climbing after reaching a three-year low in November.”

December of last year was the 5th time since 2003 that the Surprise Index has peaked over 75. According to data compiled by Canaccord Genuity Inc., 10-year treasury yields have dropped, on average, by 1.11 percentage points over the next seven months.

                                                                                                                                            Source: Bloomberg Finance, L.P. 01/26/2018

Looking at the 1yr regression of 10yr treasury yields, north of +2 standard deviations, the evidence provided by the current CITI Economic Surprise Index offers a good opportunity to consider going up in coupon on fixed rate MBS without increasing premium risks.  A few examples we like are: 2% GNMA 3/1 ARMS at a discount, discounted callable agencies and 4-8yr new issue callable agencies.

                                                                                                                                                                                                                                           Source: Bloomberg Finance, L.P. 01/26/2018



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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