Treasurys corrected a little today after the shellacking they took this week. The two-year finished up 1/32 on the day, and the ten-year was higher by 13/32. The benchmark curve flattened 4 basis points, and currently sits at +230 bps. A basis point represents .01%.We finally get a break from supply until the end of the month. CPI comes at us on Friday, and is expected to be flat on the headline number and +.1% ex food & energy. Any surprise higher could cause another selloff in the long end.
Credit
Financial Institutions must show the ability to issue debt not guaranteed by the FDIC under the Temporary Liquidity Guarantee Facility in order to be allowed to repay TARP. (This is just one of the few requirements released so far.)
Morgan Stanley and Bank of America did just that this week, giving the banks a little taste of how valuable that guarantee has been to them over the past 6 months. BAC and MS will pay 7.52% and 6.08% respectively for 5-year debt, (537.5 bps and 3.90 bps over Treasurys), a considerable premium over where they were issuing TLGP debt. This is a good sign, showing investors are willing to again take risk, but financial industry credit spreads remain very wide compared to the rest of the market.
Have a great evening.
Cliff J. Reynolds Jr., Junior Analyst
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