At 9:00 this morning the 10 yr note traded down 16/32 at 2.71% +6 BP; mortgage prices at 9:00 were -4/32. The stock indexes at 9:00 were pointing to a weaker open after the 497 point rally yesterday. A big day today; this morning Bernanke and Geithner are testifying in Congress at Barney the Frank's committee in the House (again) on the AIG thing on paying bonuses. Congress is about as helpful these days as a cold sore. The Geithner plan announced yesterday is still being analyzed this morning; PIMCO and Blackrock have signed on to take part in the public-private plan to take assets off banks' books and freeing up the market in toxic assets. A bold program on the order of the RTC plan 15 yrs ago where private equity got 85% loans from the government to buy up failed S&L assets. A plan that some are worrying that banks themselves may balk at once there is a dollar amount attached to the junk they are stuck with. A plan that some worry that with Congress acting like school children that lost their ball to bullies and taking it out on first graders; will eventually want their cut if private investors rake in nice profits. A plan that if it fails will drive the economy into a more prolonged recession.
Getting toxic loans off banks' books investors will put up $1.00, the PPIP (public-private investment program) will put up a $1.00, then the FDIC will leverage that up to 600% to buy the loans. Banks will have to sell the junk at a price that entices the private money. The loans purchased by investors and PPIP will be managed by private managers until the loans are paid off or re-sold. The FDIC will guarantee $12.00 for each $1.00 from private investors. . The second part; freeing up the market for toxic securities; Treasury will approve five large fund managers to raise $1.00 the raised capital will be matched dollar for dollar from the PPIP, Treasury will provide loans of 50% to 100% of total equity, then the funds will be used to buy asset backed securities and mortgage backed securities.
A Stampede to get out of the TARP program? Goldman Sachs is making plans to get the money back to the government; JP Morgan/Chase also hurrying to pay back the TARP money. Congress set the tone with its maniacal tirades and tax plans against AIG. Unintended consequences; Congress's actions may lengthen the time it takes to free up the credit markets as banks return the funds and then are left with little to lend. Good news in a sense; markets do not trust government, as it should be.
Not to be overlooked; Treasury begins raising $98B today with $42B of 2 yr notes; tomorrow $34B of 5 yr notes and Thursday $24B of 7 yr notes.
No economic reports scheduled today.
Last Wednesday the 10 yr note yield fell 50 basis points on the announcements from the Fed that it would buy an additional $750B of MBSs and buy $300B of longer term treasuries. At 9:30 this morning the 10 yr has given back 20 basis points of that move. Mortgage rates dipped slightly below 5.00% last Wednesday, now back above 5.00%. While all the current focus is on Treasury and "The Plan", behind the scene fixed income markets are concerned that sooner rather than later (if all the government plans work and the economy begins to recover inflation will storm out of the shoot. Whether the plans work remains a big question, even if they do help free up credit markets there is no direct corollary that it will feed into bank lending and economic rebound. Long term treasuries are stuck in a 50 basis point range with nothing on the horizon now that will break it out.
The dollar is stronger this morning; crude oil down about $1.00. Gold is off over $28.00 so far this morning.