Market update 4 28 09

My day is going well…I just found out that brokers are genetically so close to pigs that we have a built in immunity to the swine flu.

The late day update is that stocks were flat and bonds prices pulled back sending yields toward the high end of their recent range.

Today was the first time since the Fed announced their $300 billion Treasury purchase plan that the 10-year has traded above 3.00%. It is currently trading at a 3.01%. Yields can go anywhere from here but one thing we know for certain; the Fed has the means and the motive to drive Treasury yields back down. They’ve still got $240 billion worth of spending money and they plan to be in the market two to three times a week to keep downward pressure on Treasury yields.

Between the swine flu headlines, Air Force one accidentally re-enacting the 9/11 attacks, and the GM fiasco, MBS spreads have been quietly tightening in the background. You’ve heard us talking about the coming spread tightening for quite some time. Many of you purchased MBS securities last year to take advantage of this and it has worked tremendously well.

To provide a real live example I went back to October and pulled up a 10 year 5.00% MBS that I sold at 100-5. That same bond today is trading around 104-18. A small portion of this price move is explained by the fact that Treasuries are slightly lower today than they were then…the 2 year Treasury is 61 basis points lower. The rest of that price appreciation is due to spread tightening. That is a gain of just under $45,000 per million invested. That is the power of spread tightening.

Tomorrow is Fed day if anyone cares. I don’t know of anyone on the planet that expects the Fed to do anything with the overnight rate tomorrow, but we might get something out of the text that’s interesting. I’ll keep you posted.

If you have any questions on this material or if there is anything I can be doing for you just let me know.