Wednesday, January 13, 2021 |
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MANAGING DIRECTOR: Scott Carrithers PORTFOLIO SALES AND SERVICE: George Morris • Chris Thompson • Sean Doherty • Kevin Doyle • Mark Tranckino Jeff Goble • Nicole Burczyk • Natalie Regan • Aaron Stoffer • David Farris • Lonnie Harris Brian Schaff • Josh Kiefer • Robert Schuyler • Tom Toburen • Aaron Hemphill |
| 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 |
| 01/06/21 | 0.09 | 0.09 | 0.09 | 0.11 | 0.14 | 0.20 | 0.43 | 0.74 | 1.04 | 1.60 | 1.81 |
| 01/07/21 | 0.09 | 0.09 | 0.09 | 0.11 | 0.14 | 0.22 | 0.46 | 0.78 | 1.08 | 1.64 | 1.85 |
| 01/08/21 | 0.08 | 0.08 | 0.09 | 0.10 | 0.14 | 0.24 | 0.49 | 0.81 | 1.13 | 1.67 | 1.87 |
| 01/11/21 | 0.09 | 0.08 | 0.10 | 0.10 | 0.14 | 0.22 | 0.50 | 0.84 | 1.15 | 1.68 | 1.88 |
| 01/12/21 | 0.09 | 0.09 | 0.09 | 0.11 | 0.14 | 0.23 | 0.50 | 0.83 | 1.15 | 1.68 | 1.88 |
“TAPER TANTRUM” ROUND TWO?
The year was 2013 and the Federal Reserve was wrestling with when and how to end the controversial bond-buying program it began in response to the 2007-2009 financial crisis and recession.
Policymakers managed to unveil their plan for winding down the program, known as quantitative easing, at the end of that year. This was before then-Fed chief Ben Bernanke triggered what is commonly know as the “taper tantrum”, when he tipped their intentions during an appearance before Congress in May 2013.
Fast forward to today and Federal Reserve officials are concerned that more fiscal support and the mass distribution of vaccines could lead to a strong recovery in the second half of the year. This past week has seen a chorus of Fed officials discuss dialing back central-bank asset purchases.
Of course a lot will depend on how the virus and the vaccine distribution goes. But if the market repeats the actions of 2013, we might see even more of a steepening than we have already experienced. In 2013 the yield curve dramatically steepened throughout the year before tapering started in December. The 10-year yield climbed nearly 100 basis points while the 3-year rate advanced less than five basis points.
The closely watched 2-to-10 year curve has steepened every day this year and has climbed above 1.00%, a level unseen since 2017. Markets are usually never totally caught off guard however. Take a look at the 10 year Treasury chart below. As you can see, the 10-year has more than doubled from its 50 basis point low on August 4, 2020 to its current level of 1.17%, a 134 percent increase. This reflects a 22 basis point move just since the start of 2021. Perhaps it might be time to put some liquidity to work.
One security we continue to like and highlight is the 10 year final 1.50% pool shown below. Please call to discuss this and other options that could be a great fit for your 2021 investment strategy.
Why We Like
- Very low WAC of 2.19%
- 1k+ loan count
- Great spread to bullets across board at 6-18 CPR
- Add cash flow while staying short on the curve (use this cash flow to leg into higher yields down the road)
Source: Bloomberg
Source: Bloomberg
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.
•Not FDIC Insured •No Bank Guarantee •May Lose Value