What do you think about the idea that the Treasury will try to rollover most of the ST debt into 7-10yr Treasuries before they let the printing presses go nuts again at the Fed?
Agree, probably won't see 30yr prices like this ever again and certainly they're going to have trouble, even in a panic, shuffling paper into the 30yr category. But 7-10yr is possible.
Ultra-low mtg rates are why the Fed announced a coupon swap today on to-be-settled Agency MBS. On-the-run 5.5's are expensive because of low supply. Doubt these were purchased prior to the Mar 31 termination of the purchase program, but as a result of dollar rolls. Each transaction is a hidden subsidy to favored PD's.
Another unintended consequence: MBS duration models are triggering long term Treasury purchases to compensate for increased prepayment risk. These models are slow to adapt, however, and many data sources suggest refis are slowing, not growing (incl. CMI). 10's could go to 2%, but the ultimate unwind will be enhanced when the artificial demand evaporates.
Wenzel,
ReplyDeleteWhat do you think about the idea that the Treasury will try to rollover most of the ST debt into 7-10yr Treasuries before they let the printing presses go nuts again at the Fed?
Agree, probably won't see 30yr prices like this ever again and certainly they're going to have trouble, even in a panic, shuffling paper into the 30yr category. But 7-10yr is possible.
http://www.newyorkfed.org/markets/opolicy/operating_policy_100628.html
ReplyDeleteUltra-low mtg rates are why the Fed announced a coupon swap today on to-be-settled Agency MBS. On-the-run 5.5's are expensive because of low supply. Doubt these were purchased prior to the Mar 31 termination of the purchase program, but as a result of dollar rolls. Each transaction is a hidden subsidy to favored PD's.
Another unintended consequence: MBS duration models are triggering long term Treasury purchases to compensate for increased prepayment risk. These models are slow to adapt, however, and many data sources suggest refis are slowing, not growing (incl. CMI). 10's could go to 2%, but the ultimate unwind will be enhanced when the artificial demand evaporates.