The Fed’s Options for Further Monetary Stimulus

- Hardening extended period commitment is an attractive option for the Fed: "A
commitment to keep rates unchanged until the end of 2011 could yield a 20 bp to 30 bp shift lower in yields without any further balance sheet commitment. 5s could richen another 10 bp on the curve."
- Neutral on Duration: "Increased discussion of a revival of QE offsets our view that Treasury yields are below what is justified by recent growth."
- Treasury Auctions Mixed, End With a Weak 7-yr: "The 2-yr, 5-yr and 7-yr auction
results were mixed this week, with the worst result coming in Thursday’s 7-yr."
- Attractive Carry Trade in Vol: "We recommend buying gamma on 5y tails and selling gamma on 30y tails in a box trade, for attractive carry."
- The Case for The Up-in-Coupon, Against the Insta-Refi: "We find the current environment to be the perfect storm for MBS up-in-coupon. We think the “freelunch” government induced refi program is anything but and unlikely to occur."
- Agency Debt: "A covered bond bill is making its way quickly through Congress and seems to have strong bi-partisan support. We summarize the salient points of the current bill."
- US Rate Strategy Model Portfolio: "The portfolio is up 1.3% month-to-date."
Citigroup US Rate MBS Strategy Weekly 20100730

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