After the Federal Reserve announced that it would be backing poor credit mortgages with a $200 billion plan, treasuries fell sharply. “The Fed is trying to do anything it can to free up markets,” said Jason Brady, a managing director in Santa Fe, New Mexico, at Thornburg Investment Management. “People have been in asset- preservation mode. To the extent we shift away from that mode, you sell Treasuries.”
The two year note yields are now at their highest point since March of 1996. The S&P also rose, coming up to the highest since 2002. Five year treasuries also saw a big gain, going up to their highest point since April of 2004 after the news from the Fed on their backing of poor credit mortgages. Five-year notes “trade based on how quickly the Fed will take the cuts back,” explained Jason Stipanov, an interest-rate strategist in New York at Morgan Stanley. `”The fact that the Fed is aggressively addressing the funding situation means on the margin they may be able to reverse monetary policy more quickly,” referring to the poor credit mortgage news.
“One of the things that’s been driving the richness of Treasuries is that Treasury collateral has been trading at a premium,” said Stipanov. “This is increasing the supply of Treasury collateral in the system, and the higher supply should generally cheapen Treasuries.”
Related reading: Bright Light
Comment on this article