- Treasuries rallied on the week as the unemployment rate rose to the highest since 1994, vehicle sales fell to their lowest level since 1983 and the ISM Manufacturing Index fell to the lowest since 1982. Still, October’s job loss of 240k was less than September’s 284k, suggesting that the speed of economic decline could soon slow.
- The Treasury’s refunding announcement included reintroduction of monthly 3-year issuance, monthly issuance of 10-years and quarterly issuance of 30-years. Still, the tremendous financing need of the TARP may need to be met from the Special Financing Program (SFP), whose proceeds have been held in cash at the Fed. With the Fed beginning to pay interest on reserves at the target rate, reserves may rise without lowering interest rates, leaving the Fed free to give the SFP cash, which is held at the Fed to sterilize reserves, back to the Treasury to purchase TARP assets.
- The ECB decided not to get ahead of the curve, but the Bank of England did, sparking a European rally at the front end. This removed some of the value we still saw in the Euro curve. Hold on to long position in the five-year sector of the bond market, but wait for a dip to add other long rates positions.
- Forward Euribor and GBP Libor spreads are priced optimistically. Indeed, Libor spreads have just started to tighten, and the decline projected for 2009 would require a sharp tightening in credit spreads to be realised. Consequently, while expecting the curve to tighten further on trend, one would wait for better levels to enter, or add to, curve steepening positions.
Fixed Income Strategy - November 8 2008
November 8th, 2008 · No Comments
Tags: Fixed Income Strategy
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