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Bond Expert: Scary Market Action

by: John Jansen September 24, 2008    

John Jansen

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Demand for sanctuary is at a fever pitch.

Just a little while ago the Treasury conducted an auction of 7 day bills.  Admittedly, this is a very short piece of paper and normally would not be worthy of a mention here.

This one is another unusual result and is worth mentioning. In the brokers market prior to the auction the bill was trading 30/20. The auction result was significantly through that as the auction average was just 5 basis points.  There were over $100 billion of bids and foreign central banks took 35 percent.

These truly are unusual times.

The market is in overdrive and the price action is frightening once again. The 2 year note has breached the 2.00 barrier again and trades at 1.93 percent. That is lower by 15 basis points on the day. That is in spite of the Treasury selling $34 billion 2 year notes at 100PM New York time.The movement in swap spreads is frightening. The movements are fast and furious so by the time you read this it may be rather stale and I apologize for that. Two year swap spreads have blown out by an amazing 27 basis points. Earlier they were wider by as much as 30 basis points. Five year spreads are wider by 15 basis points and 10 year swap spreads are wider by about 5 basis points.

One real victim of the debacle in spreads was the Home Loan bank which prices a 2 year Global deal today. I believe it was for $3 billion. When they announced the deal yesterday outstanding secondary market paper was trading about 95 basis points cheap to Treasuries. The original talk on the issue was about 20 basis points cheap to that secondary paper at 115 basis points over the benchmark Treasury.

As the swaps market in the 2 year sector deteriorated today, so did the pricing of that issue. The Home Loan priced the issue 138 basis points cheap to the 2 year Treasury fully 23 basis points cheaper than the already cheap talk of 24 hours ago.

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This article has 2 comments:

  •  
    Sep 24 05:58 PM
    fear. We all know that a political deadlock on the bailout means the credit markets in the US are locked up and for the most part nonfunctional except for treasury and agency which are being bid like a crap table. Major business failures are possible for want of liquidity. The whole damned thing may come off the rails. The President talking to the nation tonight can not be a good sign, I think it means the Dems have made some demands for any kind of a bill, and he wants to say no, but only after he has gotten the public ready. Not good.
    Reply
  •  
    Sep 25 08:31 AM
    a reckless bill, without safeguards re the price paid for declining value assets, limits on the power of the people handling the bailout, and taxpayer equity positions in the companies bailed out, would be worse than no bill at all
    Reply
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