Fixed Income Recap

Treasurys had a good day after a strong three-year auction this morning. The two-year finished up 6/32, and the ten-year was higher by 4/32. The curve steepened 8 basis points on the day, and currently sits at +255 bps.

The Treasury auctioned $35 billion in three-year notes today at a yield of 1.96% with a bid/cover of 2.82, higher than the 2.54 average for the past four auctions. Indirect bidders, including foreign central banks, took down 43.8% of the allotted amount but only made up 19.6% of the total bids tendered by the Treasury. A sign that regardless of all the chatter in the media, foreign Treasury buyers are still willing to pay up for the full faith and credit of the US government.

TARP
The Treasury Department gave a “thumbs up” to ten banks who received TARP money, allowing them to repay the government’s investment. Although the Treasury did not provide any names ten banks have announced they will be paying the Treasury back today. The list includes every bank that wasn’t required to raise capital after the stress test, except for MetLife, plus a few who have successfully raised enough new capital. Those missing from the list include Bank of America, who had the largest capital shortfall from the stress test, and Wells Fargo, who entered the credit crisis relatively strong but has stumbled lately as a result of their acquisition of Wachovia.

The Treasury will receive about $70 billion if all ten decide to repay the entire TARP investment, but the Treasury will still retain the warrants it received when the banks initially received the funds. Firms will have the right to repurchase the warrants, said to be in the “several billion dollar range”, according to Treasury Secretary Geithner.

Here’s a quick article on the issue of the Treasury’s warrants. Link

Have a great evening.

Cliff J. Reynolds Jr., Junior Analyst