Market Analysis

Mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac are flat today with a slight positive bias.  US Treasury bonds are improved.  The recent trend of the spread between US Treasury notes and MBS widening when markets are improved is continuing.  An online article on CNBC (that can be seen at http://www.cnbc.com/id/45689529 ) discusses that PIMCO, the world's largest fixed income fund, has underperformed its peers, partly because of a recent big bet on an allocation heavy on MBS.  According to the CNBC article, since June MBS returns have been 3.15% which is almost 2% lower than US Treasury returns.  PIMCO made headlines by selling all of its positions in US Treasury notes right before a rally caused by the European debt crisis.

In economic news, the November Consumer Price Index came in unchanged, which was lower than the expected .1% increase, but the Core CPI (excluding food and energy) was up .2%, which was higher than the .1% expected for this figure.