Sept 30. Gov’t shutdown looms
–It’s all about the government shutdown now. S&P futures currently down 13. Eurodollar futures were higher overnight but gave back most gains, near contracts now -0.5 to 1.5 bps, while backs cling to small positive prints.
–Eurodollar calendar spreads continued to decline to new recent lows Friday, with the highest one year spread being EDZ15/EDZ16 at just 104, well off from high of the move in that part of the curve at 122.5. So market perception of tightening in a given year has edged down to just 1%, about the same as the difference in the Fed projections between 2015 and 2016. (difference between mean of blue dots).
–From Fed’s Dudley last week: “I can’t speak for the committee, but I can speak for myself. In my mind, beginning to decide to reduce the pace of asset purchases from the current $85 billion pace requires sort of two things, in my mind. Number one, improvement in the labor market. And, number two, confidence that the economy is strong enough to support that improvement in the future.” i.e. a taper is a tighten. And the market reacts to tightening…why did that prospect surprise the Fed?
–But while the Fed concentrates on Main St stuff like employment, here’s a quote from Blackstone’s head of private equity: “We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven’t seen in my career in private equity,” Joseph Baratta. http://www.cnbc.com/id/101067072#ixzz2gHin3dGe
–And in yet another example of really hard mortgage math, “In addition to the unprecedented claims FHA has had to pay out since 2007 for defaults on mortgages it guaranteed, largely during the 2005-2007 real estate boom, the company has had losses totalling $5 billion in its Home Equity Conversion (HECM) or reverse mortgage.” Mortgage News Daily. So the FHA had to draw $5 billion from the treasury to cover losses.
