Bond Expert: Tuesday Wrap

Benchmark agency spreads are unchanged in the 2 year sector and 2 basis points tighter in the 5 year and 10 year sector. Freddie Mac (FRE) was able to fund itself as it successfully placed $3 billion 5 year notes. The issue priced at T+113 and has narrowed by 5 basis points. It is currently 108/106.

Notwithstanding the relative success of the Freddie sale, the agency market is still a very troubled venue. One analyst notes that central bank demand for the sector has diminished significantly since June. He said the change in appetite could not be narrowed down by geography or by the asset size of the institution.

There are some outright sellers, some who just do not add or do not replace as paper rolls off, and there is a group of first time buyers. On balance, however, central banks are buying considerably less of this paper.

Some are troubled by the recent statements of Secretary Paulson that he is not eager to use his new powers. Some have extrapolated from his statements that he is only prepared to exercise his powers in an emergency. What constitutes an emergency?

Suppose we walk in tomorrow and Freddie or FNMA (FNM) cannot get rolled over in the discount note market. Treasury exercises its powers and the taxpayers have an ownership interest in the GSEs.

The central banks are anxious for a resolution or some clarification. On the other hand, Paulson would probably be happy if the stocks run close to zero and he never has to spend a penny. As long as they open for business each day he is likely to be a contented former partner of Goldman Sachs (GS).

One final note. The lack of central bank demand is most observable in the 2 year sector when it is measured on a Libor basis. Three months ago 2 year paper was Libor less 30 basis points. Currently that paper trades around Libor less 12 basis points. The 2 year sector has always been a favorite haunt of the central banks and their lack of appetite has cheapened the sector

Comments

[poncawolf:]

Because of Iraq – Russia can rebuild the eastern Bloc.

Well with the Republican Party – Destroying the American Military in Iraq – Destroying the American economy – Trillion’s in debt.
And with most Americans – Not willing to follow a Lie any longer – These brainiac republican’s neo-cons – Have left open the door to Europe – For Russia.
China’s economical front – Osama still at large – The New Rich Russian - control the gas-oil front – Iran building what - ever it wants – Most countries tired of the U.S. stripping there economy – Massive cheap slave labor – with little to no jobs now – that will need public taxpayer assistance – Then where are they going to get the money?

Hundreds of Billions needed to replace lost destroyed – run down military equip – Hundreds of Billions needed for infrastructure repairs – Hundreds of billions needed for – The bad bankers – Hundreds of billions need for energy indie.
A Person would have to be completely IDIOTIC to ever vote republican again.
Now we shall see if McCain really put’s America First – Will he call upon the rich companies to help America – and pay their taxes? - And the rich people to help pay – with their taxes?
Does McCain and the rich really love America? We shall soon find out.

2008 Aug 20 04:42 AM

[xander:]

socialist europes failure to adequately fund its defenses have allowed russia to bully it. their failure to control islamic radicals is another sign that europe leftist leaders are only good for bitching and moaning. they are also good mentors for our leftists.

2008 Aug 21 03:40 AM