Across the Curve

Bills and Repo

 Treasury bill rates have jumped significantly this morning as some of the fear leaks out of that market. The yield on the three month Treasury bill has jumped 40 basis points to 90 basis points.On the other hand the spread between GC and repo remains wide at about 135 basis points and manifests that some layer of fear remains in the market.

I spoke with a money market trader at a large primary dealer firm and he felt that the panic in the front end last week derived from the special circumstances surrounding the week. The week opened with the demise of Bear Stearns and rumors that other firms would succumb to the same forces. A long holiday weekend confronted the market with the US closed Friday and much of Europe closed Friday and today. The very fluid situation was compounded by the problems at CIT and fears that the weekend would take them down,too.

The same trader notes that the worst did not transpire and it is his opinion that the market wants to do better and that last week showed that buyers are prepared to step in. He suggests that the problems of the broker dealers,the banks and FNMA and Freddie Mac have been vetted and that it will take something beyond that which we have already seen to reinstill the same level of panic.

He noted that while one can disagree with the actions of the Federal Reserve and the Treasury one can not deny that they are intent on supplying more than ample liquidity via the host of alphabet soup initiatives which they have inaugarated.

So this gentleman expects that repo will stay tight through quarter end but once the calendar turns April will not be the cruelest month but will bring the warmth of spring to the repo market.