Updated: 04-24-2014

  • The Federal Open Market Committee will opine on April 29/30 with markets anticipating another $10 bln taper to its asset purchase program. 
  • Such a reduction would reduce the Fed's asset purchases to $45 bln per month, likely consisting of $25 bln worth of Treasury securities and $20 bln of MBS. 
  • Ahead of the taper it was widely believed such action would signify an economy that is on the mend and approaching escape velocity, and that interest rates would surely continue to rise. 
  • That thought process has been partially correct as the front of the curve has seen a notable increase in rates. Since the Fed's first taper on December 18...
    • 2y +5bps @ 0.395%
    • 3y +57bps @ 0.915% 
    • 5y +22bps @ 1.740%
    • 7y +6bps @ 2.310% 
  • However, what virtually everyone anticipated was that longer dated yields would also rise, which in fact has not happened.
    • 10y -12bps @ 2.735%
    • 30y -36bps @ 3.520% 

  • The taper has produced some interesting developments along the yield curve with the 5-30-yr spread tightening to levels last seen in the fall of 2009.
  • The flush through the 200bp area suggests there is further room to the downside with the 150bp area now in the cross hairs. 


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