Swap Market

June 2nd, 2009 8:51 am | by John Jansen |

I wrote yesterday (because sources provided me with the info) that some of the outsized moves in swap spreads yesterday related to the demise of GM and forced paying by dealers in response to the bankruptcy filing.

Several market participants have published commentary this morning opposing that view. So in order that I should be fair and balanced I present the opposing view.

The main point against my argument of yesterday is that GM only had $ 68 billion of debt with maturities greater than 20 year. That is a bag of shells relative to the enormous swap book which Lehman Brothers lugged around.

Secondly, the pool of MBS which needs hedging is enormous and at current dollar prices is in maximum hedging zone.

Thirdly, there is talk that hedging of exotic non inversion notes is part of the problem,too. Those are the funky structured instruments which drove the 30 year spread to NEGATIVE 60,70 or 8- something one day.

This is the other side of that trade.

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  1. 17 Responses to “Swap Market”

  2. By MFL on Jun 2, 2009 | Reply

    With Libor setting lower on a daily basis, and most of the convexity flows in the 10y sector, I would have expected more steepening in the spread curve. That the 2y sold off so much is puzzling. Libor-OIS grinding tighter means that end should be well anchored…?

  3. By Chicken on Jun 2, 2009 | Reply

    The JPM capital raise-up might be a turning point, good day for bond holders?

  4. By MFL on Jun 2, 2009 | Reply

    Depends on what bonds you’re holding :)

  5. By Chicken on Jun 2, 2009 | Reply

    Good point, I probably assumed most everyone here possessed a basic knowledge of markets, which I now see was a poor assumption. Alas, someday I hope to locate a knowledgeable and forward-thinking blog site.

    Good Luck!

  6. By ejsmith on Jun 2, 2009 | Reply

    Thank heaven you’re here to illuminate all these monumental events for us Chicken.

  7. By Chicken on Jun 2, 2009 | Reply

    ejsmith – I know now why this site isn’t one of the more popular ones. All I ever see are S.A. responses.

    Like I said, good luck to you all.

  8. By ejsmith on Jun 2, 2009 | Reply

    In all seriousness, please stick around so I can fade you.

  9. By Chicken on Jun 2, 2009 | Reply

    Seriously, I wasn’t the one initiating the derogatory spirit, but it’s all out in the open now.

    I’m not attempting to bless my observations, just wanted to see if anyone here knew something about markets.

    My initial question was answered, as well as a second question, which I hadn’t anticipated.

    You guys are in bad shape here, you need to work on your manners.

    Fare Well

  10. By Chicken on Jun 2, 2009 | Reply

    “In all seriousness, please stick around so I can fade you.”

    You obviously aren’t bright enough to lash tongues with me, I wouldn’t waste my time with it anyway.

    How sad for you all.

  11. By Bman on Jun 2, 2009 | Reply

    Chicken, please share some of your market insights with us.

  12. By Bman on Jun 2, 2009 | Reply

    thought so…

  13. By Chicken on Jun 2, 2009 | Reply

    “thought so…”

    Another bright comment, you guys are amazing!

  14. By Bman on Jun 2, 2009 | Reply

    yet you are still here…

  15. By Chicken on Jun 2, 2009 | Reply

    “yet you are still here…”

    Yes, didn’t I mention how fascinated I am with the breadth of knowledge here? Everything except what I’d anticipated!

  16. By Bman on Jun 2, 2009 | Reply

    Tell me something – repo, forward markets, swaptions, carry, take your pick.

  17. By Chicken on Jun 2, 2009 | Reply

    You know I have already. It’s your turn (S.A. comments don’t count).

  18. By Chicken on Jun 2, 2009 | Reply

    Well it didn’t quite work out to the magnitude I’d imagined, the FED executed nicely again today. Maybe next time…

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