So Far, Restrained Carnage

I thought that the damage in the early going would be worse than this.  The fellows who tout the existence of the Plunge Protection team will no doubt see the invisible hand of that group at work.

I do think it is interesting that the Euro is recovering a tad against the dollar and the dollar is doing better versus yen. Euro weakness and yen strength has been the canary in the coal mine for this move.

Two year sector swap spreads are wider by 6 basis points at 124. Five year sector spreads are wider by 9 basis points at 106 basis points. Ten year spreads are 5 basis points wider at 44 1/2 and bonds spreads are wider by a basis point but still traverse the realm of the unknown at NEGATIVE 4.

Two year agencies are wider by 8 basis points and 5 year and 10 year agencies are wider by about 18 basis points.

The FNMA 5 1/2s are 9 ticks lower while the 5 year Treasury  is better by 12/32.

The theme in theTreasury market this morning is curve steepening. When I wrote my opening piee at 600AM New York time the 2year/10 year spread was about 210 basis points. It is currrentlt about 216 basis points. There is some trading but for all the histrionics the level of activity is subdued. That is probably a function of liquidity which is impaired.

JPMorgan had a forecast for current quarter GDP of -2 percent. They have changed that forecast and now expect the current quarter to show an outstanding decline of 4 percent. They also have set the terminal target for the funds rste at 75 basis points.

There has been quite a bit of discussion about fails to deliver or receive in the Treasury market. One friend of the blog lays a chunk of the blame at the feet of foreign central bank counterparties. Many of those central banks have rules against failing and rather than risking a violation of some internal code many of the larger central banks who lend in repo  have significantly curtailed those lending activities. For safety reasons are holding on to securities which they would have previously lent. Ergo, tight repo.

Swap spreads leak wider. Two year spreads are wider by 8 at 125 basis points. Five year spreads are out by 11 basis points to 108. Ten year spreads are wider by 8 1/4 basis points at 48 and 30 year spreads are wider by 6 1/2 basis points at POSITIVE 1 1/2 basis points. Mortgage servicers have been hedging positions by paying in swaps.

Mortgages are being crushed as they are about 8 ticks weaker to a debilitated swaps market.

Comments

[jcrash:]

I think we can all say that the ppt was a figment of someone's imagination.

2008 Oct 24 12:14 PM

[Smarty_Pants:]

"So Far, Restrained Carnage"

Whew. For a second there I thought the Wall St. fat cats might have some difficulties if the carnage should leak into their realm.

There is only one way this will all end and that is 'badly'. 'Restraining' the carnage will only serve to prolong the time it takes to get there.

2008 Oct 24 03:04 PM