The latest Fed auction illustrates a continued downward interest rate trend. Here are the results from the prior auction:
On February 11, 2008, the Federal Reserve conducted an auction of $30 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:
Stop-out rate: 3.010 percent
Total propositions submitted: $58.400 billion
Total propositions accepted: $30.000 billion
Bid/cover ratio: 1.95
Number of bidders: 66
Banks like Wachovia (WB), Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC) are now getting money from the Fed and at almost 1/2 the 30 yr interest rates on the mortgages they can make with it. While they may be taking write-downs on the CDO portfolios they hold, when they report earnings for the current quarter, I have a feeling that people are going to be surprised by the results from normal operations.
The recent plunge in interest rates does not seem a corresponding drop in load rates from the bank. Simply put, this activity essentially allows banks to virtually print money.
Disclosure: Long Citigroup and Wachovia.