All Eyes On Draghi; Other Euro Factors Continue to Effect US Treasuries

Tomorrow’s ECB announcement is going to be closely watched, as ECB President Draghi is expected to roll out a quantitative easing program.  The central bank will start purchasing 50 billion euros of bonds per month.  They are hoping to replicate the perceived success of our Federal Reserve’s program.  Europe is more complex as there is debate among the members over which bonds to purchase ie; strong economies such as Germany, or the weaker countries such as Spain and Italy.  The stronger countries are safer from default risk but the “need” is in the weaker countries.  This should continue to depress bond yields overseas, which then makes our 1.85% 10 year Treasury a relatively high yield play.  The Greek election on January 25 is being closely watched as it may lead to a possible Greek exit from the Euro (which is considered to be less risky than it was in 2010-2011).  The US Treasury is also rallying due to the fallout from Switzerland’s surprise decision to untether the Swiss Franc from its self-imposed currency ceiling against the Euro.  Currency markets are reeling and liquidity is pouring into US Treasuries.  The 10 year hit a low of 1.75% this week, now at 1.86%.  Loan Rates – Both CMBS and Life Companies are adjusting their rate floors, all-in coupons are in the mid to high 3’s or low 4’s.   ….stay tuned…  David R. Pascale, Jr.