The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
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Quote from ralph00:
I'm very pleased not to be long the front month GE contract.
FWIW, the June10s are flat on my screen, all other months are up sharply.
Tell me something, you really expect this global debt crisis to be solved within months(as opposed to years) or you dont antecipate one at all?Remember Keynes beauty contest, it doesnt matter what is true but what people think it is, the banks are the ones holding a ton of sovereign debt, if you dont expect people to get worried about that then you might be in for a surprise. A spread blow out cuts a good chunk of the upside of that trade, possibly all of it
Latest I heard is that there's a mad scramble in the mkt for $ funding. European banks trying to get hold of term $ cash, 'cause they fear US banks will not be lending them any. The ECB might have to re-establish those x-ccy swap lines to the Fed, after all.
That would explain a lot of things. However if you were a US bank lending in london to an European bank, wouldn't it make sense for you to reprice your rate a little higher to take into account the higher risks(with the ongoing EU meltdown and all) even though the bank you are lending to has ECB $ liquidity?
At the end of the day, the CBs can provide liquidity but they cant provide solvency. Maybe the spread stabilizes at 20bps or who knows, I certaintly dont want to bet it stays belows its historical average even if it should(due keynes beauty contest)
It's not about repricing the rate a little higher or lower. If the US banks pull their lines to EUR banks, it's not a function of higher rates. In that case, if the ECB has the x-ccy swap lines in place to the Fed, it can lend secured $ cash for term and the EUR banks don't care about having lines. It's all very binary, which is part of the problem.
Well, 3m commercial paper rates have been drifting up, both for
Nonfinancial
http://www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_NFCP_M3.txt
and Financial companies
http://www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_FCP_M3.txt
The financial side is up about 18bps, more than the up move on the EFF(which was about 8bps)or the OIS(10-12bps). The CDS of the US banks also went up. So the market is viewing those banks are more risky regardless of $ liquidity demands
Nonfinancial
http://www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_NFCP_M3.txt
and Financial companies
http://www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_FCP_M3.txt
The financial side is up about 18bps, more than the up move on the EFF(which was about 8bps)or the OIS(10-12bps). The CDS of the US banks also went up. So the market is viewing those banks are more risky regardless of $ liquidity demands
Yep, that's a parallel development, but also supportive of a LIBOR/OIS widening.
For those who expect inflation to win over debt concerns, the real test will come when Spain needs a bailout and Germany pays for most of it, the figures are just insane. I dont believe the direction of Bunds prices will be up once the market realizes this(it would be up a lot if Spain were allowed to fail), they might drag USTs with them
Heck, the IMF will soon need to be bailed out. And the US will pay most of it. Thats why I dont like the long gov debt trade
Heck, the IMF will soon need to be bailed out. And the US will pay most of it. Thats why I dont like the long gov debt trade
Well, you gotta put your money somewhere, right? What sorts of choices do you have?
