Wednesday – April 29th, 2009

While we thought long and hard about using 100 as the password today as a ‘hat-tip’ to the presidents tenure, we couldn’t help but use — instead. Click open the PDF and check out the last bullet for more on (and we could have used MORON) why. Moving on and thinking firmly about supply – we’re NOT on board with market talk of a 50yr Tsy that made the rounds yest. WE attempt to put the markets move in context of mortgages and can’t help while those out there far smarter than US are looking at 3% (WSJs Ahead Of Tape as well as Tony Crescenzi?) and 3.10% (PIMCO/bloomy) levels on 10yrs as significant … we are just NOT THERE. NOT bearish, but for the supply-driven trade, we ARE on verge of breaking ‘support’ and would go-with in the short-run while looking to fade and buy dip nearer the end of the refunding process. We’ve said too much already. Full slate today with GDP early and GoBamaNomics press conference tonight. Right in the middle we’ll hear from the FOMC. Check webpage later on for any and all pertinent UPDATES. Have a great start. Best, Saul/Steve


Here’s an excerpt from our PDF


We find ourselves thinking about and using the same line over and over the last few days – we get the joke, or at least the punchline, if you will. Much like real-estate market is all about LOCATION, LOCATION LOCATION, a good friend of ours mentioned a couple weeks ago that the bond market is all about SUPPLY, SUPPLY, SUPPLY. We’ve gone over ad nauseum the supply/demand dynamics, as good faces off against evil – The Fed’s committed to buying upto $300bil Treasuries (over 6mos) while the Dept of Treasury is set to issue approx $100bil (over next 6 DAYS!). Just to throw a bit of gasoline on THAT fire, there was some talk in the market just yesterday that the Treasury would announce some sort of longer dated issue – say a 50yr – and our only thoughts or comments are as follows: The Department of Treasury is NOT and has NEVER been a good market-timer. WE happen to think the likelihood is greater that there’s some sort of calendar adjustment that brings about more frequent 30yr re-openings (we could envision an environment where we are taking down 30s in some way, shape or form, every single month).


That was then and we’re trying to think forward a bit. There’s much debate about what magical level exists that may force the Fed’s hand into buying MORE or committing to buy MORE Treasuries. We are simply NOT IN THAT CAMP and don’t know how to put it any more clearly. Taking this a step further, we think that looking at the 10yr and trying to ‘game’ what levels are significant to the Fed, well, just misses the boat completely. Yep, that’s a direct hit to the Bloomy story just above – PIMCOs Gross Says Fed May Boost Repurchases IF 10yr Yields Exceed 3.1%. WE’d much prefer to think about things in the context of spreads in the MBS space. With this in mind, we’d offer the following as just a thought. Here’s a ‘back of the envelope’ MBS vs Tsy picture we crafted using the 10yr ylds vs US Home Mortgage 30 Year Fixed National Avg. While we’re certain there’s much more to ‘it’ than we’re capable of thinkin’ about and knowing, we offer this as a good place to start.




The mechanics of the ‘spread tightening’, generally speaking, look to a better, more healthy financing and securitization process. WE OFFER THAT SPREAD TIGHTENING IN A BEARISH TSY MKT strikes us as counterintuitive and therefore raises some ‘red flags’ to US. Just don’t think that scenario is likely and we believe this is where stories like the one about PIMCO above eminate from. It is also part in parcel where and why WE continue to work with the ‘buy dip’ strategies (outright or in curve flattening fashion) which to be honest, have NOT been working out over the past couple of weeks.


Brings us full circle to thinking about SUPPLY, SUPPLY, SUPPLY and throw into the mix some more bearish seasonal tendencies up into the May refunding, which as best WE can tell, will have to raise mostly NEW CASH. Hence, we get the joke. Suffice it to say that we just don’t think it’s too funny at the moment!


Have a great start.



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