At last, a normal, quiet day in the summer! I had almost forgotten what those were like!<\/p>\n
The big news, as far as I’m concerned, is the release of Fed statistics<\/a> that\u00a0illustrate the\u00a0continued delevering of the financial system<\/a>; the amount of outstanding US ABCP down over 4% on the week:<\/p>\n More than half of the $1.1 trillion in outstanding asset- backed paper comes due in the next 90 days, according to the Federal Reserve. Unless they find new buyers, hundreds of hedge funds and home-loan companies will be forced to sell $75 billion of debt, according to Zurich-based UBS AG, Europe’s largest bank.\u00a0\u00a0<\/p>\n Those sales would drive down prices in a market where investors have already lost $57 billion, based on Merrill Lynch & Co.’s broadest index of floating-rate securities backed by home- equity loans. That may hurt the 38.4 million individual and institutional investors in money market funds, the biggest owners of commercial paper. Top-rated commercial paper is one of the world’s safest assets.<\/p>\n In Europe, the asset-backed commercial paper market is almost closed, Reynold Leegerstee, team managing director for Moody’s Investors Service, said on a conference call today.<\/p><\/blockquote>\n My guess is that we’re going to see some more blow-ups, perhaps even large and exciting blow-ups. Paribas is re-opening the redemption window<\/a> for the famous three funds that accellerated the panic; but there will be redemptions on the order books now for many funds and more to come when investors get their statements.<\/p>\n The lock-up in the ABCP markets is going to lead to exciting times (and bargains!) as financing intermediaries are forced to dump their holdings on the market for whatever they can get; such are the perils of leverage and term mismatching and the Fed’s pushing of the discount window<\/a> (and other techniques, such as a lifting of the cap on\u00a0Citigroup’s loans to customers via Citigroup Global Markets<\/a>) is intended only to ensure that there is a market; they don’t care whether or not it’s a good and friendly market.<\/p>\n But so far, I’d say, so good. The damage has largely been confined not just to the financial system, as opposed to the real economy, but to hedge funds – and it is their function to absorb risk and trade it for return. It’s far too early to celebrate – assuming that the worst is over, effects won’t show up until Christmas – but right now we’re hearing of hedge fund redemptions being stopped and large financial institutions taking write-downs; we’re not learning of huge corporations bouncing their payroll cheques. But we’ll see! Things can always get worse and there’s still a lot of tension in the corporate bond market<\/a>.<\/p>\n TD Bank released its results today and claimed that its underwriting of the BCE \/ Teachers deal<\/a> is a really good piece of business<\/a>. Well gee, if the salesman says it’s good, maybe we should all rush out and buy some, eh? There’s another one that we’ll just have wait and see about … at today’s close of 39.67, BCE common is still 7.2% below deal price, so those who are confident the deal will get done as described still have lots of chance to make some good money … at a higher yield than ABCP paper!<\/p>\n In other news we have another argument that it’s all Greenspan’s fault<\/a>; an explanation of Countrywide’s financing requirements<\/a>; and a discussion of Treasury’s problems with the IMF<\/a>.<\/p>\n US equities were quiet<\/a>, as were their Canadian counterparts<\/a>. Treasuries barely moved<\/a> and Canadas were boring<\/a>, although some flattening was seen, reversing some recent trends. A quiet summer day, in fact.<\/p>\n Things were just as quiet in the preferred share market at it drifted up in lazy trading. Just how much up and how lazy is, however, something you’re going to have to wait for, since I’ve run out of time and will have to update the tables tomorrow.<\/p>\n Update, 2007-08-24<\/strong><\/p>\n