PrefBlog

The Fed is plotting its exit strategy:

The Federal Reserve is in talks with money-market mutual funds on agreements to help drain as much as $1 trillion from the financial system as policy makers prepare for the first interest-rate increase since June 2006, according to a person familiar with the discussions.

The central bank is looking to the $3.2 trillion money- market mutual-fund industry because the 18 so-called primary dealers that trade directly with the Fed have a capacity limited to about $100 billion, estimates Joseph Abate, a money-market strategist at Barclays Capital in New York.
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The Fed is also considering reverse repurchase agreements with mortgage lenders Fannie Mae and Freddie Mac, said the person familiar with the discussions. Freddie Mac spokeswoman Sharon McHale declined to comment. Fannie Mae spokesman Brian Faith also declined to comment.

Meanwhile, the situation in Europe is having knock-on effects:

Investment-grade debt sales are drying up and returns on high-yield bonds have turned negative for the year as investors wait to see whether Europe will bail out Greece.

Borrowers in the U.S. and Europe sold $3.94 billion of high-grade securities this week, the least this year and less than … the average $52.9 billion, according to data compiled by Bloomberg.
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Investors are avoiding credit risk as European Union leaders meet to hammer out an aid package for Greece. While relative borrowing costs in the U.S. remained steady yesterday and prices to insure against defaults fell, Huntsville, Alabama- based telephone service provider ITC Deltacom Inc. canceled a $325 million bond sale, citing “current market conditions.”
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Corporate bonds have returned 1.39 percent this year, according to the Merrill index. Junk bonds lost 1.58 percent so far this month, the most in a year, the bank’s U.S. High Yield Master II Index shows.

The High Frequency Traders are taking over!:

Getco LLC, the high-frequency trading specialist founded a decade ago, agreed to become a so- called designated market maker at the New York Stock Exchange, a move that will add liquidity as the biggest U.S. equity venue seeks to halt share losses.

Getco purchased rights to handle floor trading in 350 stocks from Barclays Plc, according to a statement today from NYSE Euronext, owner of the New York Stock Exchange. The designation means Getco will be obligated to buy and sell shares at the national best bid and offer price, as well as participate in opening and closing trading sessions.

The agreement formalizes Getco’s role as a market maker with the NYSE after acting as one on electronic platforms through computer-driven strategies that produce hundreds of buy and sell orders every second.

This is a pleasant change from the usual state of affairs; normally it would be a big bank buying a private technology firm, rather than selling a chunk of their business to it. As far as I can tell from Getco’s website it’s a private company founded by two guys who, being capable of thought, were not suitable for employment at a big bank.

Off Topic! Giambrone has decided he does not wish to be laughingstock of Toronto for the next ten months, but will concentrate his efforts on solidifying his status as laughingstock of the TTC. Despite his young age, he has a distinguished record of sticking his hand up when Mayor Miller tells him to.

Another good day for the Canadian preferred share market, as PerpetualDiscounts gained 16bp while FixedResets squeezed out a gain of 1bp. Volume was relatively light and the market was well-behaved, with only four entries in the Performance highlights table – two of them BAM Floaters.

This entry was posted on Thursday, February 11th, 2010 at 8:14 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.