Friday, May 02, 2008

Ahead of Non-Farm Payrolls

I'm feeling a bit bullish on rates ahead of payrolls today. The markets feel a little too sanguine about the recession we're current in, and so I think a NFP number that's even in-line with the forecast (-75k) will cause rates to rally a bit. I expect a steepener.

The ADP report actually showed a gain of 10,000 jobs on Wednesday, which I don't give much credence. BUT... if it were to be that NFP came out with a similar number, then it means I'm wrong about a significant recession. If that happens, I'm backing way off on duration, and would expect a big flattener. Call it a 2% probability event, but an event I'm ready to act on if it happens.

Meanwhile there is a story out there that Bank of America might not back Countrywide's debt post merger. Not sure how that could work legally, but CFC CDS is about 40bps wider (from a 170 to 210 on the offer side). Looks like their cash bonds are 1 point lower across the board.

Buying in corporate bonds has been very impressive the last 2 days. On the 30th, I kind of dismissed it as just month-end buying, but it seemed to continue yesterday. We saw bigger days as the real meltdown was fading, in mid March and early April. But this week hasn't given us any real news, and still demand is strong. Its a good sign. LIBOR and swap spreads have been drifting lower as well. More detailed commentary after the number...


Anonymous said...

A question:

If the NFP was so good and credit crunch is going away, then why did the Fed cut and it keeps increasing its alphabet soup?

Things don't seem to jibe.

- Shankar

Accrued Interest said...

I think the Fed cut because they didn't want to dissapoint the market, and they figured 2.25 vs. 2.00 didn't really matter.

But they still want to push LIBOR lower. That's what the TSLF is all about. The street consensus is that the Fed will keep trying new shit until they find something that works.

Anonymous said...

"The street consensus is that the Fed will keep trying new shit until they find something that works."

WOW. This looks cool to me.