some Opening Comments October 16 2008

October 16th, 2008 6:02 am | by John Jansen |

Prices of Treasury coupon securities are slumping in overseas trading in response to a rebound in US equities futures which indicates at this time (516AM at the corporate headquarters of Across the Curve) that the death spiral of the stock market has been temporarily interrupted. Equity markets elsewhere on the globe followed the sharp price declines in the US market yesterday with steep declines of their own. Fear is rampant that the global economy will be unable to avoid a steep contraction. The Nikkei in Japan dropped over 11 percent and the Australian exchange tumbled nearly 7 percent. The Hang Seng in Hong Kong fell a comparatively mild 4.8 percent. European stocks at this time are down between 2 percent and 3 percent, continuing declines which preceded the US debacle of yesterday.The yield on the benchmark 2 year note has climbed 5 basis points to 1.60 percent. The yield on the 5 year note has climbed 4 basis points to 2.86 percent. The yield on the benchmark 10 year note has jumped 5 basis points to 3.99 percent. The yield on the Long Bond is up 4 basis points to 4.23 percent.

The 2 year/10 year spread is a basis point flatter at 239 basis points.

There is quite a bit of economic data for traders to assimilate today. CPI should be benign because of the sharp drop in energy prices. IP probably plunged again but economists report that much of the decline is hurricane related. Philadelphia Fed Manufacturing was in positive territory last month. Recent events should take that index, in my opinion, sharply into negative territory. (The Empire Survey yesterday plunged.) Initial jobless claims should begin to stabilize, somewhat, as the recent hurricane related increases unwind. Economists at UBS suggest that even when one adjusts for the impact of the hurricane the underlying trend in claims is higher.

I receive quite a bit of correspondence from the street and some of it is great commentary. One mortgage trader writes on an ad hoc basis and his pieces are always insightful. He is a veteran trader and he always has some wisdom to impart.

He notes that over the last week 30 year mortgage rates have backed up over 100 basis points. They have backed up about 175 basis points over the last 4 weeks moving from 5.25 percent to 7.00 percent.

He makes the salient point that as long as rates remain high there will be no refinancings,foreclosures will continue, and home prices will decline.

In his opinion rates have climbed because the Great Deleveraging has incited another episode of forced selling by banks, hedge funds and insurance companies that need to raise cash.

He expects that the process of deleveraging in concert with increased supply from the Treasury will work to keep rates elevated for quite awhile longer.

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  1. 2 Responses to “some Opening Comments October 16 2008”

  2. By Sprizouse on Oct 16, 2008 | Reply

    Hey there John… can you help answer me this question (or at least draw attention to it)? Why does anyone expect $125 billion (or $250 billion or $700 billion) loaned to the banks at 5% interest, will drop LIBOR (currently at 4.75%) or stem the credit crisis?

    Read my latest blog posting for the full outline of this conundrum and let me know your thoughts, please. I believe this is a serious oversight and problem with the bailout especially considering the sheer amounts of money that the banks have to earn 5% interest on. There’s no investment on the planet that’s returning greater than 5% and is RISK FREE…

  3. By Willie Chin on Oct 16, 2008 | Reply

    Just want to thank you JJJ for an awesome site.

    Please keep up the good work!!!

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