Prices of Treasury coupon securities are surging to new highs in overnight trading and as has been its wont the 2 year note leads the pack. In my closing commentary written about 300PM ET the 2 year note was trading at a yield of 1.86 percent. It is 900PM ET and it trades at a multiyear low of 1.73 percent .In that same time frame the yield on the 5 year note has dropped from 2.71 percent to 2.62 percent, the yield on the 10year from 3.70 percent to 3.63 percent and the 30year bond yield has slipped from 4.55 percent to 4.50 percent.The spread between the 2year note and the 10year note is back out to 190 basis points. The wide spread in this steepening cycle is 192 basis points.
Several factors have combined to drive yields lower. Wachovia Corp announced after the stock market closed that loan write offs in 2008 would exceed 0.75 percent of its total loan portfolio. Write offs in 2007 totalled 0.23 percent of the portfolio.An analyst at UBS suspects that the additional credit costs will be about $1billion.
Insurance giant AIG had previously disclosed that it would have write downs associated with credit default swaps. The company charged off $11.1 billion for the credit default imbroglio and added insult to that injury with an additional $3.27 billion hit in its investment portfolio.
Centro Properties Group,an Australian property company which I had never heard of until this instant,is a chunky owner of shopping malls in the US. This is not such a good time to be long US real estate of any sort and they will have a $1billion charge associated with writedowns. They lost 1.1billion Australian dollars in the 6months ended December 31 and face a debt paymet of nearly 5billion Australian dollars on April 30. It is rather unpleasant to be caught in the deleveraging vise.
S and P futures are down about 6 points after hours and the Nikkei is off 2.5 percent as the appreciating yen will take a pound of flesh from exporters. The yen is at a 3year high versus the dollar and if it drops much below here the Bank of Japan will likely ride to the rescue.