Tuesday, October 24, 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
10/17/17	.99	1.09	1.25	1.41	1.54	1.69	1.97	2.15	2.30	2.58	2.80
10/18/17	.99	1.09	1.24	1.42	1.59	1.70	1.99	2.19	2.34	2.62	2.85
10/19/17	.99	1.10	1.25	1.41	1.58	1.69	1.98	2.18	2.33	2.60	2.83
10/20/17	.99	1.11	1.27	1.43	1.60	1.72	2.03	2.24	2.39	2.67	2.89
10/23/17	1.00	1.09	1.25	1.42	1.58	1.70	2.01	2.22	2.38	2.66	2.89

                                                                                                               

                                                                                                                Source: U.S. Department of the Treasury, as of 10/23/17   
 

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Higher Spreads … or Higher Yields?

Although easier said than done, investors should be encouraged to buy on weakness (and sell on strength) as market prices oscillate within the trading range.

Fixed-income investors should note yields are currently nearing the high end of the trading range and consider “nibbling” now.  Another reason to nibble is the sideways action of the current trading range for intermediate paper, as indicated by the one year history of the 5-year Treasury yield (see below).  Additionally, the market doesn’t seem fearful of the Fed, or inflation, as the 2-year Treasury yield is only slightly higher that the overnight target rate (expected to be 1.50% by year end).

Investors should also note that as Treasury yields have recently increased, yield spreads from spread product, like Agency debentures, MBS pools and corporate notes, have narrowed, which is typically the case.  The reverse is also true, as spreads tend to widen-out when benchmark yields decline.

So, yields are “up” but spreads are “in”.  Should investors patiently wait for spreads to widen?  History suggests this will probably happen, but only as yields decline. Assuming buyers prefer lower prices, they should time their purchases with lower spreads, in favor of booking higher yields.

Today, tomorrow and Thursday the US Treasury will auction another $88 billion of debt maturing in 2-years, 5-years and 7-years. As such, it’s a reasonably good time to nibble, and U.S. Treasury yields are attractive to the alternatives. Rather than chasing a slightly higher spread, why not purchase a slightly longer U.S. Treasury note at the same yield?   

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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