Today the Treasury will announce the sizes for next week’s 3-, 10- and 30-year auctions and the market is expecting some big numbers. Last week was a rough week for supply, with bid/covers down pretty much across the board, but after everything was said and done, the long end of the curve was higher for the week and the short end was down only marginally.
Some are saying short term yields were up in anticipation of the Fed raising rates soon, but I just don’t how the market can be thinking that now. Bernanke’s favorite phrase continues to be “Economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” And in his last speech, William Dudley, President of the New York Fed, argued, “That it is still premature to talk about ‘when’ we are going to exit from this period of unusual policy accommodation.” How do those words coming from the two most influential monetary policy makers translate into higher short term rates in the near future? I’m confused.
CIT
Little has changed with CIT since they adjusted the terms of their tender offer for $1 billion in notes maturing on the 17th. Analysts are estimating that CIT will need 90% participation from bondholders to avoid bankruptcy, but even if that is successful they will need a few more pieces to fall into place in order to stave off Chapter 11. Debt for equity swaps will likely follow for large issues maturing after this month, and as always, are far from a sure thing. CIT’s “hail mary pass” in all of this continues to be their request to move assets from some of their lending units to their bank. The primary benefit to doing that is the FDIC guarantee on CIT Bank deposits, something that CIT corporate bonds were denied when they did not qualify for the TLGP program. Whether they will be able to move assets to CIT Bank in order to better fund them is in the hands of the regulators, and does not look very promising.
Cliff J. Reynolds Jr., Investment Analyst
Some are saying short term yields were up in anticipation of the Fed raising rates soon, but I just don’t how the market can be thinking that now. Bernanke’s favorite phrase continues to be “Economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” And in his last speech, William Dudley, President of the New York Fed, argued, “That it is still premature to talk about ‘when’ we are going to exit from this period of unusual policy accommodation.” How do those words coming from the two most influential monetary policy makers translate into higher short term rates in the near future? I’m confused.
CIT
Little has changed with CIT since they adjusted the terms of their tender offer for $1 billion in notes maturing on the 17th. Analysts are estimating that CIT will need 90% participation from bondholders to avoid bankruptcy, but even if that is successful they will need a few more pieces to fall into place in order to stave off Chapter 11. Debt for equity swaps will likely follow for large issues maturing after this month, and as always, are far from a sure thing. CIT’s “hail mary pass” in all of this continues to be their request to move assets from some of their lending units to their bank. The primary benefit to doing that is the FDIC guarantee on CIT Bank deposits, something that CIT corporate bonds were denied when they did not qualify for the TLGP program. Whether they will be able to move assets to CIT Bank in order to better fund them is in the hands of the regulators, and does not look very promising.
Cliff J. Reynolds Jr., Investment Analyst
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