/MBS: TD analysts eyed the MBS situation....>

US TSYS: /MBS: TD analysts eyed the MBS situation then said "the picture is not

so benign for Treasuries. Over the last 3 months, banks sold Treasuries at the

fastest pace since mid-2013 (in favor of MBS). We believe this may be in

anticipation of an easing of LCR rules, which makes banks prefer higher-yielding

MBS (conventionals over GNMA)."

- They "also do not think that banks will need to replace reserves by buying

Treasuries. We remain short duration and positioned for 5s30s flatteners as the

market will need to price in additional supply due to Fed portfolio runoff,

which we expect to be concentrated at the sub-5y part of the curve."

- They also "remain long 30yr (US) swap spreads, due to the easing of SLR rules,

which could make owning 30yr Treasuries on asset swap look attractive to banks."