Opening Comments September 29 2008

Prices of Treasury coupon securities are surging this morning as the credit crunch metastasizes across the ocean in spite of the agreement by the United States Congress to inject $700 billion into the banking system to purchase debilitated assets.Over the weekend three European governments have intervened to save Fortis Bank.

Hypo Real Estate shares tumbles as that commercial property lender required intervention by a consortium of banks to stay afloat.

In the UK, the government has intervened and seized lender Bradford and Bingley.

And in Iceland the government has nationalized Glitnir Bank.

In the US Wachovia Bank is in extremis and will probably be shotgun merged into someone rather rapidly. The severe problems at that bank will probably necessitate a governmet role in that messy situation.

Libor rates have jumped with overnight rates higher by 26 basis points to 2.57 percent. Three month Libor rates have climbed 12 basis points to 3.85 percent. Recall that the funds rate target is 2 percent.

The IG 10 has widened approximately 8 basis points to about 170.

Swap spreads are wider but it is not a complete travesty as most appear to be 1 ½ basis points to almost 4 basis points wider.

The yield on the benchmark 2year note has declined 11 basis points to 1.98 percent. The yield on the 5 year note has dropped a full 13 basis points to 2.93 percent. The yield on the 10 year note has slipped 6 basis points to 3.76 percent. The 30 year bond is an unwanted stepchild as its yield has dipped only 6 basis points to 4.31 percent.

The 2year/10 year spread has widened 0ne basis point to 178 basis points.

Strap yourself in once again. This will be a wild ride.

Originally published at Across the Curve and reproduced here with the author’s permission.