Content provided by Josh Jenkins, CLS Research/Portfolio Analyst
For the second time this quarter, the Fed has indicated that we may be getting closer to a reduction in the current quantitative easing program. Since the Q&A given by Fed Chairman Ben Bernanke on June 19, fixed income markets have fallen significantly. The frequently quoted 10-year Treasury yield currently stands at 2.50 percent as of the close yesterday, which is actually down from the high of 2.66 percent achieved on June 24. That’s up 17 basis points from June 19 and 39 basis points in all of June. The rapid rise in the 10-year yield is impressive, however, it has not seen the biggest jump. The 7-year Treasury was up 43 basis points in June. It makes sense that the middle of the curve has seen the biggest jump in yields, as that is the area the Fed has been targeting with their $45 billion per month treasury purchases.
Another interesting metric to keep an eye on is the option adjusted spread vs. Treasuries of each of the different fixed income segments. The biggest losers since the Fed meetings have been High Yield, preferreds, and emerging market debt. Spreads on these three segments have increased by at least 20 basis points each (25, 27, and 23 basis points respectively).