Tuesday, April 01, 2008

April Fool's Rally

You can all see that stocks are moving higher. I'm also hearing that there are real money bids for IG corporates. Treasuries are getting crushed.

MBS are about 8bps tighter, with Fannie Mae 6% MBS outperforming the 5-year Treasury by 1/2 point.

Lehman paper is also gapping tighter, after they raised $4 billion in capital in a convertible preferred deal. The terms are being viewed as favorable, with a 7.25% coupon and a convert price of $49.87. It looks like senior bonds are about 50bps tighter today, and 200bps tighter than the day of the Bear bailout.

Less heralded was MGIC raising capital at surprisingly attractive terms. I thought a mortgage insurer would have had to pay through the nose, but all in all, 9% and a 20% convert premium isn't too terrible. Contrast that with what Citi paid ADIA: 11% and no conversion premium.

I've lowered my portfolio duration, and am likely to lower it further in coming days. I'm also not sure the Fed has more than 25bps in cuts left, and once they stop cutting, I expect a V-shaped move in short-term rates. More discussion to come.

13 comments:

Anonymous said...

The yen is skyrocketing. When something resembling a peak is reached, the selling is going to be fierce.

Anonymous said...

AI, you follow SLM debt, right?

As a retail investor, I can't get quotes on their CDS, but I see there are some pretty big bids on their bonds. Any idea what's going on with SLM?

Accrued Interest said...

SLM got C-R-U-S-H-E-D right around the Bear collapse, then came ROARING back after. The CDS got as wide as something like 17 points. Now 800.

ward said...

Any thoughts on how the long-end will perform, conditional on a V-shaped rise in short rates?

Anonymous said...

What is V shaped? Dip followed by rally?

Anonymous said...

I don't think that the stock market or the American economy can outpace jobs.

If, if unemployment is rising, the market can rally up to the skies with borrowed yen. It won't last.

Footnote: eurozone unemployment is at the lowest on record. Don't expect the dollar to go anywhere soon.

Dave M. said...

AI, How's the spread with high yield bonds? Have we gotten to the magical 1,000 basis point spread that usually indicates the end of the line?

Chris said...

Thornburg Mortgage had to issue 18% interest bonds in order to stay afloat

Anonymous said...

Leverage is dead!

Long live leverage!

[The yen is still falling.]

rajesh said...
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rajesh said...
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rajesh said...
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Accrued Interest said...

V-shaped just means that it recovers quickly, as opposed to U-shaped indicating that the bottom takes a while to reverse.

I think the curve flattens substantally, but all rates rise. I'm lowering duration but trying to figure a way to make it work in a flattener.