Tuesday, October 14, 2008

I think I got it!

The government is buying shares in banks.

The FDIC is going to insure "most" new bank debt. (Not sure exactly what that means yet.)

Death of capitalism? We'll see.

As for the bond market, CDS are obviously crashing tighter. The CDX is 50bps tighter to 170. Goldman about 250 tigher to +200, Merrill 190 tighter to +180, Citi 230 tighter to 110, Bank of America, Wells and J.P. Morgan each about 80 tighter. Morgan Stanley goes from 20-something points up front to about +370.

Swaps spreads 20 tighter on the front end, about unchanged in the 10-year area. Treasuries lower by a 1.25 points in the 5-10 year area, long bond down 3 points.

I'd look for a violent short-covering in financial CDS. The big names have been de facto guaranteed by the government, like it or not. They've got a bigger balance sheet than you, and they are now using it in full force. Don't fight it. If you don't like it, just stay out of the way.

I continue to like munis and MBS here.


Burak T said...

Hi Accrued,

what's your take on great treasury bubble scenario?

CreditTrader said...

Hey AI, just an FYI - CDX IG11 (as IG10 is illiquid now) is actually only about 2bps tighter (intrinsics are around 20bps tighter). IG11 (like all the CDS indices) does not contain any major financials (interesting ha?) coz they contribuet prices to the markit levels...Went out around 181bps last night and is now 179bps (was 166bps earlier so well off its tights of the day) - non-financials getting crushed (relatively).
HVOL11 is 53bps tighter but remains considerably less liquid than IG11, HY11 is about 11bps tighter - CDS market is not buying the positive sentiment.
The nine names of the CPP have only 7 that trade in CDS (SST and BoNY are not liquid) are around 56% tighter than their close Friday BUT none of the major radable indices (except the CDR NAIG futures contract on CME) include any of these financials.

CreditTrader said...

Sorry AI, quick correction - IG10 is indeed 40bps tighter BUT was pretty illiquid yesterday so not sure this reflects reality - look at IG11 for reality check here...

PNL4LYFE said...

I still think the most amazing index in all of this has been LCDX. Sure, there are a lot of LBO names in this index, but it is still mostly first lien with good amounts of subordination. It got as low as 82 (cents on the dollar, not bp) on Friday which implies L+1100bp assuming 65 recovery or 950bp assuming 50 recovery. And even at those levels, it is still not as hard-hit as cash loans.