Flash Update - Liquid Real Estate Portfolio

No Taper Spells a Rally in the Treasury Market and an Even Stronger Rally in MBS

The Fed declined to taper at all today, sending Treasury securities more than a point higher in price at the longer end of the maturity spectrum (7 years+).  The markets had been expecting a $10-$15bln taper, either equally weighted between MBS and Treasuries or perhaps more strongly weighted in Treasury securities.  After lagging the Treasury rally for about 10 minutes, mortgages soon picked up on the rally and eventually tightened nearly a quarter to a half point more in price on a hedged basis than Treasuries.

The rally in Treasuries is an example of a  “Bull Steepener”, in the sense that intermediate maturities fell faster in yield than longer maturities - perhaps reflecting that investors believe this delay in taper is not a long lived phenomenon, at least as far as the Treasury market is concerned.  However, in MBS, the tightening was more pronounced in longer dated discount MBS – again perhaps reflecting that investors believe future tapering will be more focused on Treasuries than in MBS.  To the extent future tapering is focused on Treasuries versus MBS (as we and others expect), it will continue to bode well for the MBS market.

All-in-all, it was a very strong day of performance in fixed income markets, especially MBS securities.  In terms of our Liquid Real Estate Portfolio, it’s important for investors to understand the Fed’s commitment to a more gradual tapering of its Treasury and MBS purchases will bode well for our mortgage strategies contained therein.  While fundamentals continue to improve in the RMBS and CMBS markets, and rates inevitably will rise, it will allow the positive carry of its holdings to continue to accrue and home prices to remain well supported.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global