Across the Curve

Some Opening Comments October 23 2008

Prices of Treasury coupon securities have registered mixed results in overseas trading with the longer end of the Treasury curve unchanged while the shorter maturities posted small losses. The yield on the benchmark 2 year note edged higher by 3 basis points to 1.53 percent. The yield on the 5 year note climbed 4 basis points to 2.56 percent. The yield on the 10 year note was unchanged at 3.59 percent and the yield on the 30 year bond was unchanged at 4.05 percent.The underlying gloom which permeated the market yesterday has not abated and in some cases might have deepened.

Equity markets around the globe are not even attempting to imitate the actions of a moribund feline striking the pavement.

The South Korean market dropped 7 percent and is down 22 percent in a week. The ratings agencies are making noises about downgrading its banks.

The Nikkei fell 2.5 percent as exports tumble and companies slash earnings forecasts. Sony cut its earnings forecast 37 percent.

The Hang Seng fell 3.6 percent and Australian stocks tumbled 4.4 percent.

European stocks are, on balance, lower by 2 percent with companies on that continent slashing earnings forecasts, too.

US equity futures had rebounded early in the overnight trade but have since retreated and now are in the red.

The Treasury will announce some new supply today for auction next week, There will be a reopening of a 5 year TIPS bond which is now a 4 ½ year bond. The Treasury will also offer 2 year notes and 5 year notes. Analysts expect $35 billion 2 year notes and $25 billion 5 year notes. Each of those amounts would represent Guinness Book of Records results as the largest offering ever in those maturities.

At 830 AM New York time the Labor Department releases the weekly claims data. Recent readings have been elevated by the effects of the hurricanes but even as that effect fades the number should not drop off dramatically. Analysts expect something in the 465K to 470K range.

Later today when the Federal Reserve releases its weekly package of data, it will mark to market the nearly $30 billion of assets it holds in the Maiden Lane portfolio. (The employee entrance to the Federal Reserve Bank of New York when I worked there in the 1970s was on Maiden Lane. The official address is Liberty Street.) According to economists at UBS, the portfolio should be marked down sharply. JPMorgan is responsible for the first $1.5 billion of losses and then the taxpayers are on the hook.

In retrospect, that now seems like a paltry sum ($ 30 billion) and it pales next to the hundreds of billions of dollars being tossed to and fro elsewhere. That would have been unthinkable last March when many thought that the demise of Bear would prove a demarche and the solution of the markets woes.