Bond Trader: Friday Wrap

Prices of Treasury coupon securities dropped sharply following the less than expected decline in payroll employment and unanticipated decline in the unemployment rate to 5.0 percent from 5.1 percent.

The yield on the benchmark 2 year note has increased by 11 basis points to 2.45 percent.

The yield on the 5 year note is higher by 9 basis points and currently trades at 3.16 percent.

The yield on the benchmark 10 year note has surged by 7 basis points to 3.84 percent and the yield on the 30 year bond has increased by 6 basis points to 4.56 percent.

The 2 year/10 year spread is closing the day at 139 basis points. It traded as tight as 132 basis points in the residue of the data this morning but has passed the remainder of the day leaking wider. (I have no capital left so I will refrain from commenting on that trade!!

The labor report headlines were less weak than anticipated but the entrails of the report still disclose an economy in distress. Construction jobs declined by 61K and manufacturing jobs fell by 46K. Retail jobs slippped by 27K. The business service sector boosted employment as it rose 39K following a decline of 34K in the prior month. The data here is not all that heartening as 13K of the 73K swing is in the temporary worker category. In addition the data show that financial services jobs rose 3K, and that flies in the face of the facts here on the ground.

Hourly earnings increased by just 0.1 percent, magnifying the squeeze on consumers as food and energy costs surge.

The index of hours worked fell 0.4 percent from the prior month and that does not bode well for production.

Finally, the diffusion index, which is a measure of the number of broad industry categories hiring versus those firing, fell to 45.4 from 48 percent in the prior month. The break-even level for that metric is 50.

Activity in the Treasury market was light after the initial markdown period this morning. Dealers occupied themselves setting up for the refunding from the propitious levels which prevailed early in the day. The heavy supply of corporate bonds weighed on sentiment in the loner maturities. Others reflected on the coupon sales of the Federal Reserve in the 10 year sector today and surmise that this activity is meant to sterilize the effects of the increase in the new enlarged TAP facility. So many thought that if they were not shy about selling ahead of the Treasury today they will not feel constrained next week, either.

Mortgages finished the day about 2 ticks tighter to swaps. The improvement stemmed from the drop in volatility which is at five month lows.

This morning in my first post I linked to a Bloomberg story which noted that there was some dyspepsia in the marketplace regarding Bank of America (BAC) and Countrywide Financial (CFC). Some worry that Bank of America might not guarantee Countywide debt and leave bondholders in the lurch. Against that background, Countrywide CDS widened about 75 basis point today . One salesman with whom I speak regularly noted that his derivative trader emulated Roberto Duran and shouted “no mas” regarding bids on Countrywide debt.

Have a good weekend.

Comments

[H2O]

So who in there right mind would give countrywide - any thought of believing there - so-called self induced price????

After all they love faking apprasials!!!

Whats to stop them from commeting wire fraud - with any prices????

Only a IDIOT would take anything countrywide say to the bank!!!!!

Aftrer all one count of wire fraud - I proved - now let the millions of AMERICANS - finbd out how countrywide faked there apprasials too.

So if Bank Of America - says there not responsible for countrywides - wire fraud, so a corpo lien against countrywide will work....

Filed - May ? 2008

S.G.Simpson

[e-mail]


all I ever wanted to do is settle this predatory lending......

2008 May 02 07:38 PM

[H2O]

The Clintons – Both did wire Fraud – Whitewater

IN all the indolent of The Clinton in trying to sell real-astute called whitewater – Everybody looked at housing – savings and loan fraud – and or criminal activity However – NO one looked at wire fraud – the appraisals of their whitewater place – were faked – no one bought into it – it went down – but the Clintons and others used – the banking system to push there realistic sales – and No one looked – those fake appraisal using the banking system was fraud.

Just like today – everybody looks at housing laws – when all along – everyone – involved on the saving & loan scandal – committed – wire fraud – not unlike countrywide today.


It all started with a little real estate deal 20 years ago. In 1978, then-Arkansas Attorney General Bill Clinton and his wife, Hillary, joined a partnership with James and Susan McDougal to buy 220 acres of riverfront land and form the Whitewater Development Corp.
The goal was to sell lots for vacation homes. But the partnership did poorly and finally dissolved in 1992, leaving the Clintons reporting a net loss of more than $40,000.
James McDougal also owned a savings and loan association, for which Hillary Clinton did legal work. Due in part to a series of fraudulent loans, McDougal's Madison Savings and Loan was one of many thrifts that went bust at taxpayer expense in the 1980s.

2008 May 02 09:47 PM

[H2O]

in·do·lent Audio Help /ˈɪndlənt/ Pronunciation Key - Show Spelled Pronunciation[in-dl-uh... Pronunciation Key - Show IPA Pronunciation
–adjective 1. having or showing a disposition to avoid exertion; slothful: an indolent person.
2. Pathology. causing little or no pain; inactive or relatively benign: an indolent ulcer that is not painful and is slow to heal.

2008 May 02 09:48 PM

[Serge Birbrair]

I doubt very much that BAC can afford the guarantee. After all, BAC has it's own problem,
Auction Rates Securities and associated class action law suits and arbitrations are just the part of it

2008 May 03 04:48 AM

[Coelacanth]

It's a good sign junk bond financing issuance here and in the euro-zone was at a 5 year high in April. A steepening yield curve is welcome too. The 3 month Libor started easing even before the Fed, the ECB and Swiss central bank got involved but it may help it come down some more now that they have. It'll be fits and starts for a while.

Did B of A finding something smelly hiding at Countrywide? Having a hard time valuing some of those mortgages? LOL. The market barely noticed when S & P down graded CFC's debt to junk on Friday. It also didn't make a big deal when B of A recently reported a sizeable loss in earnings was due to defaults on credit cards and car loans.

It will when it affects earning further out.

2008 May 03 07:13 PM