I don't have time to discuss this in committee!

Fed funds futures now indicate a decent chance of an inter-meeting cut in the target rate. My instinct is that this won't happen. I think Friday's late-day rally in both the stock market generally and Countrywide CDS/stock specifically indicate that the Fed's reaction so far is having an effect. I don't think they'll take the extreme measure of actually cutting their target rate inter-meeting unless there is more bad news.

Futures trading is not really at odds with this view. If future price in, say 25% chance of an inter-meeting cut, one could view this as a 25% chance that some piece of bad news comes out between now and month-end. I think the media often reports this as though 25% of traders think there will be a cut and 75% don't. But in reality, everyone is playing the odds game.

I think there is an excellent buying opportunity in high-quality spread product. Don't forget that a high percentage of money invested in the bond market is leveraged in some manner. Not just hedge funds, but insurance companies, bank assets, broker/dealers, REITs, etc., all are leveraged one way or another. When leveraged players take losses, they often have to reduce their leverage. In a market plagued by poor liquidity, one is forced to sell what is sellable. That's going to be Treasuries first. But if you don't hold Treasuries, then you have to sell your Agencies, MBS, high-quality CMBS/corporates, etc.

But when the dust settles, real money is going to want to own spread product. Plus if the curve can steepen, it will strengthen the position of REIT and bank players to enter the MBS market. So the products that widened merely because liquidity is poor get tighter rapidly.

Before Thursday and Friday's problems, this scenario was playing out in MBS and high-quality corporate bonds. But I still think there is more money to be made in these sectors.