Bond Expert: Monday Outlook

Prices of Treasury coupon securities are surging this morning as the credit crunch metastasizes across the ocean in spite of the agreement by the United States Congress to inject $700 billion into the banking system to purchase debilitated assets.Over the weekend three European governments have intervened to save Fortis Bank.

Hypo Real Estate shares tumbles as that commercial property lender required intervention by a consortium of banks to stay afloat.

In the UK, the government has intervened and seized lender Bradford and Bingley.

And in Iceland the government has nationalized Glitnir Bank.

In the US Wachovia Bank is in extremis and is being shotgun merged into Citibank rather rapidly.

Libor rates have jumped with overnight rates higher by 26 basis points to 2.57 percent. Three month Libor rates have climbed 12 basis points to 3.85 percent. Recall that the funds rate target is 2 percent.

The IG 10 has widened approximately 8 basis points to about 170.

Swap spreads are wider but it is not a complete travesty as most appear to be 1 ½ basis points to almost 4 basis points wider.

The yield on the benchmark 2year note has declined 11 basis points to 1.98 percent. The yield on the 5 year note has dropped a full 13 basis points to 2.93 percent. The yield on the 10 year note has slipped 6 basis points to 3.76 percent. The 30 year bond is an unwanted stepchild as its yield has dipped only 6 basis points to 4.31 percent.

The 2year/10 year spread has widened 0ne basis point to 178 basis points.

Strap yourself in once again. This will be a wild ride.

Comments

[User 143167:]

This bailout plan after revision becomes a JOKE! NO banks are willing to tap that plan if they have any chance to survive. Just to make sure you are not gonna die is not enough for them to lend their money to others! This plan will become a total waste. These politicians are idiots! You either bail out banks and put everything on the taxpayers, or veto any plan and use the money on other more meaningful stuffs. To do it half way is the WORST strategy as it is enough to hurt taxpayers but not enough to turn around the credit market. Plain stupid!

2008 Sep 29 09:07 AM

[whidbey:]

One reason bond buyers are concerned is that some real estate experts are saying the rewrite down on real estate in the US will be about 7Trillon when it is over. This loss of wealth has the potential to push money into the bond market, not for yield, but simple return of capital. But, some where in here comes a major mark down in assets, making bonds at any yield attractive: I think that is called disinflation or maybe depression.

2008 Sep 29 11:49 AM

[JasonC:]

National City 4 month paper yields 112% at of 3 PM. Stock off 60% and change.

2008 Sep 29 03:02 PM

[JasonC:]

Bonds of Fifth Third and Regions Financial holding up, with yields 11.5% and 9% respectively, even though their stocks are off 40% and 30% respectively. National City stock is off 60% with its bonds reading "critical" - 75 cents on the dollar with 4 months to run etc.

2008 Sep 29 03:04 PM

[JasonC:]

Wachovia paper has recovered from the default levels of Friday, with yields still as high as 20% on some items but most up around 15%. Considering they were at triple digits Friday that is obviously a relief. Most regional banks are being priced for a significant chance of Wachovia style, bonds-intact failure or merger - only National City is splitting the difference between that level and Washington Mutual style, bonds-nuked failure.

Major overseas are down 20-30%, with Royal Bank of Scotland the biggest that looks dire.

2008 Sep 29 03:07 PM

[JasonC:]

Morgan Stanley debts mostly yielding 20% right now, one issue (modest size) an outlier at 36% yield to (short) maturity (January 09 notes at 91.5)

2008 Sep 29 03:27 PM

[JasonC:]

CIT Group also distressed, stock off 24%, notes yielding 25%.

2008 Sep 29 03:31 PM