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Tuesday, November 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 • 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
11/14/17 1.06 1.26 1.40 1.55 1.68 1.81 2.06 2.26 2.38 2.64 2.84
11/15/17 1.08 1.25 1.39 1.55 1.68 1.79 2.04 2.21 2.33 2.58 2.77
11/16/17 1.08 1.27 1.42 1.59 1.72 1.83 2.07 2.25 2.37 2.62 2.81
11/17/17 1.08 1.29 1.42 1.60 1.73 1.83 2.06 2.23 2.35 2.59 2.78
11/20/17 1.09 1.30 1.46 1.62 1.77 1.86 2.09 2.26 2.37 2.60 2.78

                                                                                                                                         Source: U.S. Department of the Treasury, as of 11/20/17  

Short/Intermediate Treasuries are screaming “BUY”

The Treasury curve is the flattest it has been since coming out of the previous inversion (2006/7) and currently stands at 62 BPS as it relates to the spread between the 2YR Treasury and the 10YR Treasury.  If the long end of the Treasury curve continues to move very little, the Fed will have a hard time making an argument for tighter policy as they will be very sensitive to inverting the yield curve.

One of two things needs to happen.  Inflation indicators need to suggest to the market that the long end should sell off (move higher in rates) or the Fed will have to pause on tightening the FF rate.  There is an argument for either side, however if you are a student of regression analysis, you would argue the latter (Fed will lay off the gas) as the 3YR Treasury is currently suggesting there is a 96.5% chance yields revert back toward the mean or lower.

Should you have liquidity to put to work, we recommend you focus on the short/intermediate part of the curve as it offers the most steepness and is illustrating the highest probability of moving lower.  We are happy to find something that fits best in your portfolio however here are a couple to consider:

  1. 3YR Bullet: FHLB 1.75% Coupon Due 11/6/20 @ 1.88%

  2. 5YR Disc Callable: FHLB 1.82% Coupon Due 3/9/22 Callable 3/9/18 Anytime @ 2.13YTM (+10BPS to similar maturity bullet)



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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