PrefBlog

There is news of a substantial drop in LIBOR:

The swap agreements with central banks, which also followed rate cuts from China to Norway, led to a drop in three-month rates in Asia. The London interbank offered rate, or Libor, for three- month loans in dollars slid 23 basis points to 3.19 percent today, its 14th consecutive drop, according to the British Bankers’ Association. The overnight dollar rate tumbled 41 basis points to 0.73 percent, the lowest level since at least January 2001.
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The three-month Libor for dollars remains 219 basis points above the Fed’s rate, up from 82 basis points the day Lehman failed. It was 192 basis points yesterday before the rate cut.

The re-intermediation (novo-intermediation? It hasn’t really been done before) by the Fed in the US commercial paper markets (discussed last weekend) has continued big-time with the Fed’s latest H.4.1 release showing an increase of nearly $200-billion in deposits from banks, offset by a decline of $36-billion in Treasury balances, an increase of $145-billion in commercial paper holdings and an increase of $22-billion in foreign currency assets.

I expressed concern yesterday that the Excess Reserves / Discount Window spread, at 60bp, was too small to encourage reintermediation by the the banks – I’d like to see that bumped to 85bp just for starters. But I’m less concerned about the spread on the Commercial Paper Funding Facility – at 235bp for regular commercial paper, it’s high enough to encourage reintermediation by the banks as soon as they’re feeling a little braver.

Derek DeCloet has a column in today’s Globe cackling with glee over hedge funds that didn’t hedge; in this category comes a fund from Deephaven which is being deep-sixed:

Deephaven Capital Management LLC, the hedge-fund unit of stockbroker Knight Capital Group Inc., froze a $1.6 billion fund after investors asked to get back 30 percent of their money.

Withdrawals from the Deephaven Global Multistrategy Fund were suspended so managers wouldn’t be forced to sell assets in falling stock and debt markets, the Minnetonka, Minnesota-based firm said today in a letter to investors. Lenders and trading partners also imposed stricter financing requirements, according to the letter.

If it was an actual hedge fund, of course, they would be buying just as much as selling. But perhaps I quibble.

Treasury today released guidance on tax breaks for Fannie & Freddie preferred share investors (as long as they’re banks):

The Treasury Department and the Internal Revenue Service today issued Revenue Procedure 2008-64 (Rev. Proc. 2008-64), which provides that certain gains and losses from indirect ownership of Fannie Mae and Freddie Mac preferred stock can be treated as ordinary income and loss.

The Emergency Economic Stabilization Act of 2008 (EESA) provided banks and certain financial institutions ordinary treatment for gains and losses on direct investments in preferred stock of Fannie Mae and Freddie Mac. It also directed the Treasury Department to issue guidance with respect to the treatment of these gains or losses when realized indirectly through certain investment vehicles.

Rev. Proc. 2008-64 provides banks and certain other financial institutions the benefit of ordinary treatment on gains and losses that they are experiencing on certain indirect investments in this preferred stock.

And, just to ensure everybody is cheerful, there is news of a lock-up in the Japanese bond market:

Japanese yen corporate bond sales dried up in the second half of October as the seizure in global credit markets, plunging equity values and volatility in the Asian nation’s currency deterred investors.

Toyota Finance Corp. was the last company to sell yen bonds when it issued 42 billion yen ($428 million) of three- and five- year notes on Oct. 15, data compiled by Bloomberg show. The Tokyo-based lessor reduced that sale from a planned 50 billion yen after market turmoil pushed up borrowing costs, a company official said at the time.

“The credit market is dead,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan, part of Canada’s fifth-biggest bank. “Investors don’t want to buy anything because there’s so much credit risk right now.”

An active day for prefs – and there were many lower-quality issues trading in good volume that weren’t included in the tally.

There were thirty-eight other index-included $25-pv-equivalent issues trading over 10,000 shares today.

This entry was posted on Thursday, October 30th, 2008 at 10:50 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.