Now raising intellectual capital
Treasury’s auction of $20 billion of 10-year notes – the second in a three-part $70 billion fund raising effort this week – drew in some aggressive bidding, but the broader market is having problems finding its footing in the aftermath.
The long bond had piled on more than 6BPs in the immediate aftermath of the sale Tuesday, though it’s pulled back some in the interium, making for an attractively steep yield curve for those funding their longer term purchases at short term rates. The spread between 3-month Libor and the long bond now stands around 407 basis points.
This brings up another point. Yesterday, the blog zerohedge posted a piece from its guest blogger, Yves Lamoureux of Blackmont Capital, who noted some unusual behavior in the bond market- namely that dealers are holding onto their long positions in 30-year Treasurys. You can see the full post here.
But given the steepness of the yield curve, I wonder why they would significantly want to pare them down. It’s one of the easiest ways to generate gains and with the Federal Reserve not even hinting at a rate hike, it’s a trade they’re likely to keep on for some time.
The Federal Deposit Insurance Corp’s debt guarantee program in many ways saved the banking system from collapse during last year’s worst of times. Banks were effectively shut out of the credit markets after Lehman Brothers scared bond investors silly. More than $270 billion of guaranteed debt has been sold since the FDIC adopted the program in October.
The program ends in October, as it should. It’s served its purpose and there’s no reason to keep subsidizing banks with cheap financing now that they’re making gobs of money and handing out jaw-dropping bonuses. But don’t expect the banks to start crying uncle when they have to raise funds the old fashioned way without the FDIC backing. That’s because they don’t have to.