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Friday, August 3, 2018 |
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MANAGING DIRECTOR: |
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US Treasury Market |
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| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 7/27/18 | 1.90 | 2.00 | 2.20 | 2.43 | 2.67 | 2.76 | 2.84 | 2.92 | 2.96 | 3.03 | 3.09 |
| 7/30/18 | 1.91 | 2.04 | 2.21 | 2.43 | 2.66 | 2.77 | 2.85 | 2.94 | 2.98 | 3.05 | 3.11 |
| 7/31/18 | 1.94 | 2.03 | 2.21 | 2.44 | 2.67 | 2.77 | 2.85 | 2.92 | 2.96 | 3.03 | 3.08 |
| 8/1/18 | 1.93 | 2.03 | 2.22 | 2.45 | 2.67 | 2.78 | 2.87 | 2.96 | 3.00 | 3.07 | 3.13 |
| 8/2/18 | 1.89 | 2.02 | 2.22 | 2.45 | 2.66 | 2.76 | 2.85 | 2.93 | 2.98 | 3.06 | 3.12 |
Source: U.S. Department of the Treasury, as of 08/2/2018
Heads You Win…..Tails You Win?
The FOMC just met on Tuesday and Wednesday of this week and very little was revealed other than a unanimous opinion that they would keep rates unchanged for now and “economic activity has been rising at a strong rate”. It is widely expected that the Fed will raise rates two more times this year.
Here is an opportunity investors should consider whether you think rates will continue to rise or you think we are nearing the end of the tightening cycle and rates are peaking. Hybrid Agency ARMs with 5/2/5 cap structures purchased at discount dollar prices present such an opportunity. The prospect of a 500 bps increase in a homeowner’s mortgage rate, in a rising rate environment, would get anyone’s attention. This incentive should result in increased cashflow to investors as homeowners attempt to “stop the bleeding” by refinancing, whereas fixed rate mortgages should experience slower prepayments as rates rise. On the flip side, if rates were to go down the investor will accrete the discounted dollar price at a faster pace as homeowners seek to eliminate the interest rate risk presented by their Adjustable Rate Mortgage by refinancing to a fixed rate mortgage.
Source: Bloomberg LLC, As of August 2,2018 at 11:10am
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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