Wednesday, August 21, 2024 |
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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 |
| 08/14/24 | 5.33 | 5.21 | 4.96 | 4.43 | 3.96 | 3.77 | 3.68 | 3.73 | 3.84 | 4.22 | 4.13 |
| 08/15/24 | 5.32 | 5.22 | 5.00 | 4.54 | 4.10 | 3.90 | 3.79 | 3.83 | 3.91 | 4.27 | 4.17 |
| 08/16/24 | 5.33 | 5.21 | 4.97 | 4.48 | 4.05 | 3.85 | 3.75 | 3.79 | 3.88 | 4.24 | 4.14 |
| 08/19/24 | 5.34 | 5.19 | 4.97 | 4.50 | 4.06 | 3.86 | 3.75 | 3.78 | 3.87 | 4.23 | 4.12 |
| 08/20/24 | 5.31 | 5.17 | 4.91 | 4.43 | 3.98 | 3.79 | 3.68 | 3.72 | 3.80 | 4.17 | 4.06 |
The data in the table above is static as of the time it was pulled, so rates may have changed. Treat all data in this table and PMR as indications only and availability is
always subject to change. This information was pulled manually from sources we believe to be reliable. New source, as of 12/12/2022, Bloomberg, L.L.P. As of: close
of business 08/20/2024.
Still Time to Lock In 5.00%
Well as we’ve all heard by now, the Fed is set to meet on September 18th and the market anticipates a rate cut of between 25 and 50 basis points. As the Fed Funds Futures chart below indicates, there is currently a 100% probability of at least a quarter point cut at each of the five meetings from now through March of 2025. Extending out, the chart shows a total of 8 cuts (200 basis points) by October of next year with an implied Fed Funds rate of approximately 3.17%.
Source: Bloomberg L.P. 8/20/24
As is typically the case, the treasury market has “front run” the Fed and treasury yields have begun to drop in anticipation of future cuts. The graph below reflects maturities in the 1-10 year range and shows how they have all dropped approximately 40-50 basis points in the past month alone.
Source: Bloomberg L.P. 8/20/24
Granted the peak yields of this rate cycle are probably behind us, but for those portfolio managers who have been slow to participate or have remained on the sideline altogether throughout the recent high rate environment, it’s still not too late to enhance your portfolio’s average yield. As an example, a 5.00% plus return can be achieved with the MBS shown below.
Source: Bloomberg L.P. 8/20/24 Indication only / Subject to change and availability without notice
In the base case, this 30 year 5.00% coupon FNMA pool at a discount offers a 5.01% yield with a 6.07 duration and 126 basis points of spread to the treasury curve. Should rates drop as expected, the duration shortens but the 5.00% yield remains very stable due to the discounted dollar price near par. In the worst case, if rates jump 300 basis points from here, the 5.00% plus yield remains unscathed and the duration only extends to 7.68.
If you would like to discuss 5.00% portfolio options, there are other possibilities still available in the mortgage backed ARM market, as well as with high quality municipal bonds and the tax equivalent yields that they afford.
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