Miscellany and More Libor Thoughts

April 17th, 2008 10:53 am | by John Jansen |

 Risk management has had a deleterious effect on the Treasury market and the swap markets as traders unwind bad positions or long held positions in which profits are shrinking. Traders report that hedge funds ,servicers and real money has been busy taking off steepeners which have soured as well as unwinding spread tightening trades in swaps.

In the money markets I think that there is a double whammy for Libor. In part Libor rates are rising because of the angst generated by the Wall Street Journal story of yesterday. But a second factor to consider is the developing notion that the FOMC is nearly finished with this ease cycle. Against that backgound, the money market curve should steepen and it has. So that market has confronted a perfect storm. I am hearing that one month Libor will set about 5 ½ basis points higher tomorrrow and 3month libor is indicated 6 basis points higher.

Corporate bond spreads are firmer in some alternate universe. The GE tranches from yesterday are about 10 basis points firmer than they were at pricing. The gigantic JPMorgan preferred issue has traded between 100-16 and 101-3/8.

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  1. 2 Responses to “Miscellany and More Libor Thoughts”

  2. By Felix on Apr 17, 2008 | Reply

    Wouldn’t a curve-steepening trade effect Treasuries equally? And isn’t it the Libor *spread* which people are worried about?

  3. By John Jansen on Apr 17, 2008 | Reply

    I will answer your question in the body of my closing piece which I am writing as we speak.

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