| Thursday, February 6, 2020 |
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| MANAGING DIRECTOR: Scott Carrithers PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty 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 |
| 01/30/20 | 1.59 | 1.57 | 1.57 | 1.48 | 1.41 | 1.37 | 1.39 | 1.49 | 1.57 | 1.88 | 2.04 |
| 01/31/20 | 1.56 | 1.55 | 1.54 | 1.45 | 1.33 | 1.30 | 1.32 | 1.42 | 1.51 | 1.83 | 1.99 |
| 02/03/20 | 1.56 | 1.57 | 1.56 | 1.46 | 1.36 | 1.34 | 1.35 | 1.45 | 1.54 | 1.84 | 2.01 |
| 02/04/20 | 1.55 | 1.57 | 1.57 | 1.48 | 1.41 | 1.40 | 1.42 | 1.52 | 1.61 | 1.91 | 2.08 |
| 02/05/20 | 1.55 | 1.57 | 1.57 | 1.49 | 1.44 | 1.43 | 1.46 | 1.57 | 1.66 | 1.97 | 2.14 |
Source: U.S. Department of the Treasury, as of 02/05/2020
Outstanding Yields Are Available
We have been discussing cost averaging over the last few days and the merits of investing on a consistent basis, regardless of current yields. Today, we examine an agency MBS that is probably a little more rate sensitive than the bonds we outlined earlier, but we believe worth a look.
In particular, we are featuring a 30 year FNMA MBS with a 3% coupon. This bond is two months old and is a current coupon. The price is 102.484 to yield 2.46% at the current pricing speed with a projected duration of only 4.8 years.
Take a look at the yield table below and note that if rates stay about the same, the current pricing speed will produce the results stated above. But, this bond is rate sensitive. If rates increase 100 bps the duration extends to 8 years to yield 2.68%; up 200 bps the duration is 8.6 years to yield 2.71%; and up 300 bps the duration is 9.1 years to yield 2.73%. Likewise, if rates decline the duration will decrease along with the yields.
The key is to put the current yield in the context of current market and assess the potential for changing rates. Future rates cannot be definitively determined of course, but keep in mind where we currently are. Is it possible that 30 year mortgage rates could decline 100 bps from here? What are the chances that they will shoot up 200 bps? These and other rate questions are near impossible to predict. In moderation, this bond could be a reasonable addition to most portfolios.
Below are the details of the 30 year FNMA 3.0% coupon offering: Call if you have interest in this security.
We have been discussing cost averaging over the last few days and the merits of investing on a consistent basis, regardless of current yields. Today, we examine an agency MBS that is probably a little more rate sensitive than the bonds we outlined earlier, but we believe worth a look.
In particular, we are featuring a 30 year FNMA MBS with a 3% coupon. This bond is two months old and is a current coupon. The price is 102.484 to yield 2.46% at the current pricing speed with a projected duration of only 4.8 years.
Take a look at the yield table below and note that if rates stay about the same, the current pricing speed will produce the results stated above. But, this bond is rate sensitive. If rates increase 100 bps the duration extends to 8 years to yield 2.68%; up 200 bps the duration is 8.6 years to yield 2.71%; and up 300 bps the duration is 9.1 years to yield 2.73%. Likewise, if rates decline the duration will decrease along with the yields.
The key is to put the current yield in the context of current market and assess the potential for changing rates. Future rates cannot be definitively determined of course, but keep in mind where we currently are. Is it possible that 30 year mortgage rates could decline 100 bps from here? What are the chances that they will shoot up 200 bps? These and other rate questions are near impossible to predict. In moderation, this bond could be a reasonable addition to most portfolios.
Below are the details of the 30 year FNMA 3.0% coupon offering: Call if you have interest in this security.
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