Pershing Fixed Income Commentary

The Treasury market finally broke through its trading range this week, with yields moving strongly higher on growing risk appetite, improving economic prospects and the feeling that the world is a safer place. All of these facts were likely at play when the FOMC met this week, keeping rates unchanged, but providing no indication that another round of QE was imminent. Additionally, the Federal Reserve hinted at higher short-term inflation as a result of rising gas prices, although it couched these expectations as temporary. As bond traders loathe inflation, especially when rates are woefully scant, the 10-year Treasury traded 30 basis points wider this week, while the 30-year was 25 basis points wider. Spreads subsequently tightened on improving risk appetite and positive bank stress tests results. We think rising T-rates will promote the continuation of an active new issuance market, which ultimately masks shrinking net issuance trends, another supportive factor as we move into 2Q 2012. Read the full commentary now.