11 September 2009
US Fixed Income Weekly
Deutsche Bank Securities Inc.
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Market Update
Research Team
Mustafa Chowdhury
Research Analyst
(+1) 212 250-7540
mustafa.chowdhury@db.com
Aleksandar Kocic
Research Analyst
(+1) 212 250-0376
aleksandar.kocic@db.com
Joseph LaVorgna
Economist
(+1) 212 250-7329
joseph.lavorgna@db.com
Art Frank
Research Analyst
(+1) 212 250-6156
arthur.frank@db.com
Marcus Huie
Research Analyst
(+1) 212 250-8356
marcus.huie@db.com
Jerome Saragoussi
Research Analyst
(+33) 144 956408
jerome.saragoussi@db.com
Ralph Axel
Analyst
(+1) 212 250-7104
ralph.axel@db.com
Fixed Income Fixed Income Relative Value Global Markets Research
􀂄 A switch by central banks from bills to coupons, owing to reduced
liquidity risks, should be supportive for Treasuries in the near term.
􀂄 Over the longer term, however, rising long-duration issuance and the
end of Fed buying should result in pressures for rising yields, with the
caveat that if the securitization market doesn’t recover, there could be a
secular shift into Treasuries.
􀂄 Recent Treasury auctions have shown substantial buying strength.
Demand for Treasuries, and bidding in auctions, is likely to remain
elevated for some time.
􀂄 We believe that the rates market is at an inflection point and expect a
partial normalization of the vol surface. With the recent supply of vol and
the outlook of lower economic uncertainties, we are sellers of vol.
􀂄 The uncertainties related to the Fed reaction function and positioning at
the short end of the curve are likely to cause continuous repricing of the
risk premia in this sector. We see good value in short dated caps and
upper left corner vol.
􀂄 Given the substantial uncertainty about the future of the Fed MBS
purchase program, investors should market weight the agency MBS
universe. An abrupt termination of the Fed program would be less
negative for higher coupons, so we continue our up-in-coupon bias.
􀂄 Supra-sovereign spreads have converged to GSE levels, resulting in GSE
debt that is relatively attractive again. But some supras and Government
guaranteed issuers have lagged and offer value.