RSS feedconvexity
’Bunds are the new treasuries, when they want to be
FT Alphaville wondered earlier why German bunds would be affected by convexity hedging dynamics in the US, one of the factors that is supposedly driving 10-year US bond yields to fresh lows.
Could it all be down to that old devil,
How low can they go?
Another day, another set of lows in 10-year Treasury and bund yields:
In bund yields specifically, we might add that these are record lows for both the 10-year and 30-year yields — which on Friday struck 2.273 per cent and 2.957 per cent respectively.
A humpy US curve
FT Alphaville reported on Wednesday that the US 10-year Treasury swap spread was back in negative territory.
But rather than looking at the historical spread for clues as to what’s going on, we thought it might be a good idea to look to the curve.
What the Fed’s boringness begot
Last week the analysts at Deutsche Bank blamed the erstwhile boringness of central bank policy — or at least its predictability — for fueling the financial crisis.
Mortgage expert and George Soros-advisor Alan Boyce has a similar idea:
The return of the SFP
Cast your mind back to the turbulent days of November 2008.
Markets were roiled in the aftermath of Lehman Brothers’ collapse and money market fund troubles. The Federal Reserve was massively expanding its balance sheet to help restore liquidity to the system.
Fannie, Freddie and FAS 166/167
Who would have thought a new accounting standard might end up increasing prepayment speeds on US mortgages?
The two US GSEs will be, like other US financial companies, adopting FAS 166/167 from 2010.
Convexity crops up
Uh oh. There’s that word again — convexity.
Here it is in the Wall Street Journal:
[FTN Financial's Walt] Schmidt said mortgages are performing well, considering 10-year Treasury notes are yielding close to 3.2%.
Treasuries, of bidders and bulls
Last week was an absolutely massive one for US Treasury issuance and it produced some interesting auction results.
To wit, the below chart of indirect bidders’ participation in Tuesday’s 2-year auction,
Bernanke conundrum calculator
What fun.
Political Calculations has built a calculator, using a formula inspired by some Calculated Risk data, that generates predicted mortgage rates based on current Treasury yields — and vice versa.
Negative convexity at the Fed
Negative convexity in relation to the US Federal Reserve is something that’s been discussed on this blog before. It’s rather interesting then, that just as talk of an impending convexity event heats up,
More on maximum negative convexity
Wading into the Treasuries sell-off and negative convexity debate this Monday is Deutsche Bank.
Their central premise: you can’t explain the recent US government bond sell-off by convexity hedging alone.