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.