Sept 28. Flatter curve. Financial capital trusts.
Sept 28. Friday’s big story was curve flattening in response to Warsh comments (Fed’s Warsh said the central bank may have to be as aggressive in removing stimulus as it was in adding). Two year note rose 6 bps in yield, while tens fell nearly 5 bps; 233 spread, new recent low. Red/gold pack spread declined almost 17 bps. Red pack was down over 6.5 bps, while greens were actually higher on the day by nearly 4. 2/10 hasn’t been this low since mid-May.
–No real news Monday but Fisher and Plosser speak Tuesday, events which may now have added importance in the wake of Warsh.
–I found the response to Warsh a little surprising, especially since the market is tending toward safer assets again. Tens now can’t seem to get above 3.5%. The evidence from cash-for-clunkers indicates a degree of dependency on gov’t aid, now in the slow process of being withdrawn.
–When I get a chance I review a report on bigcharts.com that highlights stocks with big changes in volume. Friday was quite interesting in that the top 10 or more names with huge % volume increases on the NYSE were ALL financial capital trusts or preferreds. All rose in price. Morgan Stanley; Fifth Third; WFC, etc. Most of these issues are callable at $25 and have fairly high yields. My conclusion is that someone is grabbing for the safety of these yields which are probably now thought to be quasi-government guaranteed.
–As an example, National City Capital Trust ii is $25 par, callable Nov 15, 2011, with coupon 6.625%. www.secinfo.com/dsVS7.v8Am.htm
This one was up 13% to $23.20 on Friday.
Bigcharts link: www.bigcharts.marketwatch.com/reports/bigmovers.asp?date=20090925&data=1&start=1&report=3&report_country_code=us
It seems to me that that one could create a fairly robust hedge against buying these capital trusts by buying red Eurodollar put strips, which coincidentally appear to be a bit more actively traded recently. For example the red pack 96.00 (4%) put strip is around 127 bps.
In any case I AM NOT RECOMMENDING anything, just noting the activity.
The information in this report is compiled for the convenience of the user and is furnished without responsibility for accuracy or content. It is accepted by the user on the condition that errors or omissions shall not be made the basis for any claim, demand, or cause for action. The author of this report may hold positions described herein in a personal trading account. Copyright 2009.
