Category Archives: bonds and loans

Credit Markets Get Even Scarier

Posted on October 10, 2008 by Felix

John Jansen is scaring me today. Remember the new CDX investment-grade index, IG 11, which just launched? They took the crap out of IG 10 (Fannie Mae, Freddie Mac, WaMu), and put in solid corporates like Xerox and UPS. And … Continue reading →

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The Unwinding of the Moral Hazard Trade

Posted on October 9, 2008 by Felix

This is the Age of the Bailout. And everybody knows how bailouts work: the government steps in and makes whole any holders of fixed income instruments, be they bonds or deposits or even subordinated debt. That’s what happened with Bear … Continue reading →

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Should the Fed Target Libor?

Posted on October 9, 2008 by Felix

Many thanks to Colin Barr, who saw my question about how we can bring down Libor and pointed me to a recent essay by Edwin Truman with a very specific proposal about doing just that. Truman takes the very direct … Continue reading →

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How Can We Bring Down Libor?

Posted on October 9, 2008 by Felix

When banks get nationalized, they become much safer, right? So what on earth is overnight Libor doing at 5.09%, and three-month Libor at 4.75%? The TED spread is a new record high, 413bp, making all its previous scary spikes look … Continue reading →

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The Sovereign Default Race Heats Up

Posted on October 8, 2008 by Felix

You thought Iceland was in dire straits? Maybe Pakistan will beat it to the first-to-default finish line! Pakistan’s economic crisis deepened on Monday after the rupee sank to an all-time low and Standard & Poor’s, the global rating agency, downgraded … Continue reading →

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TED Breaks 400bp

Posted on October 8, 2008 by Felix

So much for unprecedented global coordinated rate cuts, not to mention a UK bank bailout which could reach a mind-boggling 500 billion pounds. TED’s at 403bp, European stocks are sharply lower across the board, and the US stock market, after … Continue reading →

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How CDOs Are Like Stocks

Posted on October 7, 2008 by Felix

I had lunch today with Moe Tkacik; I was talking about how I’ve always been much more comfortable in the world of bonds, which can be valued quite easily, rather than stocks, which are essentially impossible to value with any … Continue reading →

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Mortgage Repayment Datapoint of the Day

Posted on October 7, 2008 by Felix

The real-world consequences of an elevated Libor: The average subprime borrower facing an adjustable payment for the first time next month would face a monthly payment increase of about 18 percent based on Libor rates as of Sept. 30, rather … Continue reading →

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TARP for CP

Posted on October 7, 2008 by Felix

Hey, the Fed has a new acronym! It’s called the CPFF (commercial paper funding facility) and it’s basically the TARP, only instead of buying toxic mortgage-backed securities, the government is buying commercial paper. The new facility is backstopped by the … Continue reading →

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Bernanke’s in Charge of the Special Sauce

Posted on October 6, 2008 by Felix

Analogy of the day comes from Mohamed El-Erian, who likens the credit markets to a drive-thru burger joint: “Imagine yourself at the drive-thru ordering a Big Mac. At one window you order and pay, at the other – 20 feet … Continue reading →

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Topsy-Turvy Datapoint of the Day, Fannie Mae CDS Edition

Posted on October 6, 2008 by Felix

Reuters reports on the results of the Frannie CDS auction: Protection sellers on the companies’ subordinated debt were the biggest winners, with contracts on Fannie Mae’s subordinated debt recovering 99.9 percent of the sum insured… Credit default swaps on the … Continue reading →

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Wachovia: Getting Messy

Posted on October 6, 2008 by Felix

The fight over Wachovia is getting messy. Court judgments are getting overruled; obscure provisions in the bailout legislation are taking on a crucial importance; the Fed is acting like King Solomon, splitting the baby between the West Coast and the … Continue reading →

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Lehman’s Lies

Posted on October 6, 2008 by Felix

The WSJ has a fantastic piece of reporting about Lehman’s failure this morning, which explains something I hadn’t understood until now. Yes, Lehman’s bankruptcy caused the credit crisis to get much worse. But the mechanism might well have been Lehman’s … Continue reading →

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Bailout Datapoint of the Day, AIG Edition

Posted on October 3, 2008 by Felix

Remember the $85 billion loan that the US government extended to AIG? It turns out the insurer really needed that much money after all: The firm tapped about $61 billion of the federal credit line after saying Sept. 16 it … Continue reading →

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Why the Bailout Bill Alone Won’t Solve the Credit Crisis

Posted on October 2, 2008 by Felix

I’m not surprised that three-month Libor ticked up again today, to 4.21%. TED’s now at 357bp (chart above), which is really bad, and it’s going up, not down. While the stock market has settled down after the chaos of Monday, … Continue reading →

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There’s No Such Thing as Risk-Free

Posted on October 2, 2008 by Felix

Andrew Hill is, I fear, a bit confused. He starts off with the very important point that in these days of monster bailouts government guarantees ain’t what they used to be: Pause a second before you transfer your sterling deposits … Continue reading →

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Libor Update: Still Frozen

Posted on October 1, 2008 by Felix

Overnight Libor came down today, to Extremely High from Utterly Ridiculous. But three-month Libor went up: it’s now 4.15%, which means that TED’s at 334bp — or as it’s referred to these days, "frozen". (No interbank lending is actually going … Continue reading →

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The Dysfunctional Credit Market

Posted on September 30, 2008 by Felix

One of the problems with a credit crisis is that it’s much harder to track fixed-income markets than it is stock markets. Name a stock or a stock index, and it’s easy to see how prices reacted to every minute … Continue reading →

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Libor: 6.88%

Posted on September 30, 2008 by Felix

Are you in any way reassured by the dead cat bouce in various global stock markets? Don’t be. This is a credit crisis, remember, not a stock-market crisis: the impact on stocks is just collateral damage. And this morning, overnight … Continue reading →

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TED: 348bp

Posted on September 29, 2008 by Felix

There are some great comments on my blog entry from Friday about whether the TED spread really matters right now. With TED up to a whopping 348bp today, it’s worth addressing them. One thing which comes up repeatedly in the … Continue reading →

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Does the TED Spread Really Matter?

Posted on September 26, 2008 by Felix

I’m hardly the only person paying close attention to the TED spread right now. Here’s a few blog entries about it from today alone: 1 2 3 4 5 6 7 8 9 — there was even a joking fight … Continue reading →

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When it Rains, it Pours

Posted on September 26, 2008 by Felix

This is really, really bad. In a nutshell: the bailout package, which everybody thought was a done deal, has been undone by some combination of Republican recalcitrance and the heat of the presidential campaign. At the same time, WaMu’s gone … Continue reading →

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Chart of the Day: Sectoral Contribution to Debt

Posted on September 25, 2008 by Felix

Now that Robert Higgs and David Cay Johnston have both brought up personal and business lending as an indicator that credit isn’t frozen after all, I’m feeling a meme coming on. And this chart, from Martin Wolf in the FT, … Continue reading →

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Are The Credit Markets Still Healthy?

Posted on September 25, 2008 by Felix

Robert Higgs has a long list of healthy-credit-market datapoints to support his contention that any talk of a frozen market is "hyperbole". Commercial and industrial loans of all commercial banks, which are reported monthly, have grown rapidly. The most recent … Continue reading →

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Who Will Manage the Bailout Fund?

Posted on September 25, 2008 by Felix

The jockeying for who is going to get the mandate to run the government’s bailout fund has begun in serious. Bill Gross, giving an interview to the NYT, says he’ll do it for free — which doesn’t mean he wouldn’t … Continue reading →

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