Thursday, January 29th 2009

U.S. Is Considering as Much as $2 Trillion to Restore Banks’ Health: WSJ

Treasuries Head for Monthly Loss Before Record $30 Billion Five-Year Sale: Bloomy

 

 

We’ve taken the liberty to update pic of 5s/bobls on our pdf from yesterday. Trade idea we were talking about worked. Better yet, it’s done so in a fashion that has cheapened the 5yr up so it may just NOT be an awful auction today, despite the let-down (Fed NOT jumping in to buy?). There’s ALSO a WSJ article (bottom of WSJ stuff) that we wanted to highlight and we think it was in yesterday’s ppr. Talks about all the PORK in the bill that just passed. Read the article. Twice. Then have a look towards Pelosi and you’ll question why the heck she’s so PROUD. ALSO would like to point out the FOMC attachment on the PDF, given there are many differing opinions ‘out there’ as to what they did and did NOT say/do yesterday. On THAT note, we’d mention one last thing – StreetStuff has a Q&A from Goldman on The Bad Bank situation that WE thought quite good. Get ready to bid on 5yrs after a boat-load of data. Let’s hope we KEEP what bit of ‘concession’ we’ve got IN the market at the moment.

 

Here’s an excerpt from the PFD (which is as always now, linked just below)

 

Data and supply will certainly offer some entertainment for today. We are impressed with what the 5yr has done relatively speaking, as we looked at it here in this space, just yesterday, versus the Bobl. The 5yr has cheapened up a bit and rightly so. Can’t help but think it’s better to be lucky than good, though as it’s widely being accepted at the moment that yesterday’s aggressive repricing AFTER the FOMC announcement, due to a let-down that the Fed did not in fact begin purchases of Treasuries. Apparently some ‘out there’ in the Treasury market were/are looking for their very own version of The Bailout. May still be in the works but for now, we are somewhat thankful it didn’t happen, as we would much prefer to see supply come at relatively good levels as opposed to being crammed down all of our throats in the face of a Fed-induced grab-A-thon. May not feel great at the moment but we think there’s some sort of value to be had. Keep in mind, we’re aware that overall, the argument that Treasuries are in a bubble does hold merit. It’s just that from a relative value point of view, as we’ll attempt to point out, today’s giNORMOUS auction might just go OK.

 

First, we’ll dig up and update picture of 5s/Bobls we had here yesterday. NOW the spread is in the middle of the range (which would have produced profit of about 10-15bps since yesterday) and as optimists, we’d suggest that’s better than them being super expensive. Glass is half full. Here’s visual:

5s-bobls

 

Next, we’ll look at it relative to the FedFunds. Not sure why and/or IF this is relevant but with ZIRP and the specter of the Fed buying Treasuries being continually under consideration, 5s appear to have at least some modicum of ‘spread’ and therefore the glass here, too, is half full:

5s-funds

 

While it may NOT offer 300bps of ‘spread to Funds’, we must point out that when it did, Funds were NOT AT ZERO. Metrics may just be different at the moment SO …

 

OUR POINT is that there are some ‘out there’ who will HAVE to bid on these things and they may very well have enough cover to do so. We’re thankful they are not being forced to take them down ‘on the run’, causing even MORE sleepless nights!

 

Speaking of sleepless nights … did you see the news from Starbucks? Bloomberg reports that ‘Starbucks to Cut 6,700 Jobs After Earnings Fall 69% (Bloomy)’ … GREAT. NOW WHAT are we gonna do when confronted with those supply-induced sleepless nights? Where are we gonna go to get our fix? What Bloomy neglected to mention about that awful news from Starbucks can be found HERE, courtesy of the latest Borowitz Report – ‘Starbucks Eliminates Coffee, Cups, Stir-thingies’. Enjoy and have a great start!

 

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