Q&A on QE

- QE-II Not a Done Deal — "We do not expect any QE to be announced in September. Beyond that, QE-II would be triggered if the Fed downgrades growth projections to forecast rising unemployment and/or financial conditions worsen significantly."
- Unlikely That TIPS Will be Added to Aggregate Bond Indices — "Although the market has priced in up to a 33% probability that TIPS will be added to benchmark indices, we anticipate that this will not happen. However, expect extremely high demand for TIPS if it does."
- Lower Rates, Longer MBS Durations? — "Prepay models are lengthening mortgage durations to reflect the new prepay dynamics experienced in the last two years. We do not expect these model changes to stimulate duration flows."
- Agency Debt — "2-year agency spreads to Treasuries are very tight historically. Thus, we recommend extending from 2-year agencies to 3-year agencies on the front end of the curve."
- US Rate Strategy Model Portfolio — "The portfolio is down 0.1% month-to-date"


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