Aug 23. Bonds close weak, treasury vol higher. Reversal?

Interest rate futures were higher Friday morning on Weber’s (ECB) comments about supporting banks with liquidity thru year end.  However, by the end of the day the US market reversed and the curve steepened, while implied vol was significantly higher in treasuries.  Red/gold pack spread gained 9 bps to 215, just after Morgan Stanley threw in the towel on the steepener call. 
–This week treasury auctions 2, 5 and 7 year notes. 
–A few interesting articles over the weekend: NY Times’ Gretchen Morgenson outlines the consumer debt problem ($1.3 trillion in cons debt is delinquent).  Germany’s Der Spiegel says the US middle class is vanishing (echoing Elizabeth Warren).  A story late last week mentioned that people are tapping 401Ks at a record rate to make ends meet.  Iran ready to fuel its nuclear power plant, Israel says it’s unacceptable.
–Perhaps more interesting is the SEC sanction against the state of NJ for fraudulently selling bonds ($26B) without disclosing underfunded pensions.  Just wait until they examine Illinois.  In my opinion all of the troubled bonds in existence, whether for states or the housing mess, or other unfunded liabilities, are going to start to be perceived for exactly what they are: obligations of the US Fed’l Gov’t, i.e. the Treasury.  The foreign buyer of T-notes, of course, might have a problem with this, and the Fed can’t buy everything…or can they?
–I saw another interesting post about FASB accounting treatment of leases and an upcoming rule change which would make companies have to show leases on their balance sheets.  The gyst is that balance sheets will appear shakier.  Given the mark-to-market accounting rule relaxation in spring of 2009 which marked the bottom of the stock market, I no longer dismiss accounting changes.

–Shore Bank closed…lender to poorer communities in Chicago closed as FDIC shutters 118 banks this year.  Potter wins.

Posted on August 22, 2010 at 2:37 pm by alexmanzara · Permalink
In: Eurodollar Options

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