Agency and Swap Open

August 18th, 2008 10:37 am | by John Jansen |

Barron’s had a very negative article this weekend on FNMA and Freddie Mac and predicted the imminent demise of those institutions via an infusion of taxpayer funds via Hank Paulson and his minions. I noted some of the details in my opening comments post.The agency market has responded by moving spreads wider. Benchmark agency paper in the 2 year sector is 4 basis points wider while paper in the 5 year sector is 6 basis points wider.

Benchmark agency paper in the 10 year sector is 4 ½ basis points wider.

Swap spreads are leaking wider also as the theme of financial distress works its way through the various markets. In the 2 year through 10 year sector swap spreads are 2 to 2 ½ basis points wider. The 2year spread and the 5 year spread are each north of 100 again.

Those levels last prevailed back in March when a certain large and venerable securities firm drew its last independent breath.

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  1. 5 Responses to “Agency and Swap Open”

  2. By Ron on Aug 18, 2008 | Reply


    Obviously the issue of recapitalizing the GSE’s is the topic of the day, but people should realize, it will be difficult, as any recapitalization plan which will be the destructive of the preferred holders of which many regional and smaller banks are large holders and would both destroy their capital and the availabilty of capital to these institutions who depend on the prefeereds to raise capital.

  3. By JLA on Aug 18, 2008 | Reply

    Might be too elementary for many of the readers of this site, but Bennett Sedacca wrote a great 3-part series last week about dislocations in the credit market. Didn’t get to FNM or FRE, though.


  4. By John Jansen on Aug 18, 2008 | Reply


    Great point.

    But we are at approaching a real financial and philosophical crossroads.

    The essence of capitalism (even in our hybrid and modified version) is that good risk reaps rewards and bad risk is penalized.

    Do we want to socialize every risk? What are the implications of that for the taxpayer and the dollar? Might the system not be better off if there is some purgative cleansing with some real pain?

    It seems to be that we can not go on for ever shielding entities from all losses. At some point someone has to lose.

    I do not want to pick who that should be and I am not suggesting that the process is without pain but it seems to me that it is necessary.

  5. By ndk on Aug 18, 2008 | Reply

    Spreads go out at 105.5, high for the day and highest since BSC’s death.

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