Latest Fed Auction Illustrates Falling Rates

Includes: BAC, C, WFC
by: Todd Sullivan

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 (NASDAQ:WB), Citigroup (NYSE:C), Bank of America (NYSE:BAC) and Wells Fargo (NYSE: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.