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Daily Archives: December 21, 2007 @ 2:45 pm (Friday)
Repo Mkts and TAF
(an interoffice email)
On 12/21/07, Pat Doyle
wrote:
>
>
>
> It is becoming apparent that the funding pressures for year end are ebbing.
> The ease in pressure has a lot to do with the TAF and coordinated CBK
> interventions. The Fed is getting the cash to the people who need it.
> Discount window borrowings have been slowly climbing as well approx 4.6bb
> now. The Fed statement that they will provide this TAF facility for as long
> as needed is easing concerns amongst banks and providing a reliable source
> of funding for “hard to fund” assets.
Should have done this in August!
>
>
> There is and has been a lot of cash in the markets still looking for a home.
> Balance sheets are slowly cleaning up but balance sheet premiums (repo) will
> remain stubbornly high as long as the level 3 type assets remain on
> dealer/bank balance sheets.
>
>
>
> The current spread between the 1×4 FRA vs. 1×4 OIS is 57bps..
This looks like a good play – seems unlikely LIBOR will be at a wider spread than the discount rate. Load up the truck?
1×2 FRA vs.
> 1×2 OIS is 40bps. Spot 1mos LIBOR VS 1MOS FFs is 4.86 vs. 4.25 or 61bps.
> These spreads still represent continued unwillingness to lend in the
> interbank market and also illustrate a steeper credit curve.
>
>
>
> Turn funding has not changed substantially. While funding appears to be
> stabilizing, balance sheets are still bloated and capital ratios are still
> under pressure therefore balance sheets will remain expensive in repo land.
>
>
>
> From another bank;
>
> Mortgages over the year-end turn traded at 5.25 today, which we still feel
>
> is a good buy here considering the amount of liquidity the fed has been
> dumping
>
> into the system as of late (via the TAF and standard RP operations) and the
>
> expectation that they will continue to do so on Dec 31. Treasuries also
> traded
>
> over the turn traded today at 2.50, the first treasury turn trade we’ve seen
> in
>
> quite some time.
>
>
>
>
>
> Yesterday Tsy GC O/N’s backed up from the low 3s to 3.70. The FED has been
> actively trying to increase the supply of treasuries in the repo markets.
>
>
>
> AGENCY MBS repo has been steadily improving. 1mos OIS vs 1mos AGCY MBS has
> gone from a spreads of 63bps last week to 15bps last night. And spreads to
> 1month LIBOR have widened by 33bps AGCY MBS from L-23 12/13 to L-56 12/20.
> Again LIBOR still showing the unwillingness of banks to lend to each other.
>
>
> -Pat
>
>
>
>
> Patrick D. Doyle Jr.
>
> AVM, L.P. / III Associates
>
> 777 Yamato Road
>
> Suite 300
>
> Boca Raton, Fl. 33431
>
> 561-544-4575
>
>
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Philly fed numbers from yesterday
The detail is of interest – no sign of weakness here.
Prices still very firm.
New orders and shipments strong.
Work week higher.
Inventories down due to shipments up – seems to have caused all the headline ‘weakness’.
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2007-12-21 US Economic Releases
Personal Income (Nov)
Survey | 0.5% |
Actual | 0.4% |
Prior | 0.2% |
Revised | n/a |
OK number.
Personal Spending (Nov)
Survey | 0.7% |
Actual | 1.1% |
Prior | 0.2% |
Revised | 0.4% |
Nice bounce back from a low number also revised up. Makes the two month average about 0.75%. This will cause further upward revisions of Q4 GDP.
PCE Deflator YoY (Nov)
Survey | 3.4% |
Actual | 3.6% |
Prior | 2.9% |
Revised | 3.0% |
Back to my favorite quote from September, ‘If the fed doesn’t care about inflation, why should I?’
Wonder what it takes for the fed to care?
PCE Core MoM (Nov)
Survey | 0.2% |
Actual | 0.2% |
Prior | 0.2% |
Revised | n/a |
PCE Core YoY (Nov)
Survey | 2.0% |
Actual | 2.2% |
Prior | 1.9% |
Revised | 2.0% |
Core at or though fed’s upper bound.
U. of Michigan Confidence (Dec F)
Survey | 74.5 |
Actual | 75.5 |
Prior | 74.5 |
Revised | 2.0% |
People still watching CNBC.
Inflation Expectations – 1 Year Ahead
Survey | n/a |
Actual | 3.4% |
Prior | 3.2% |
Revised | n/a |
One of the fed’s indicators – don’t like this action as they think once it elevates it’s too late.
Inflation Expectations – 5 Years Ahead
Survey | n/a |
Actual | 3.1% |
Prior | 2.8% |
Revised | n/a |
As above – once it elevates it’s too late.
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