NEW YORK (Reuters) – The window of opportunity is closing for boutique bond trading firms to make a killing from market turmoil as big Wall Street banks regain their footing and rehire staff.

During the financial crisis and its aftermath, bid/offer spreads, or the gap between the price for selling or buying a bond, widened dramatically, offering opportunities for middlemen.

Small boutique firms reaped much of the profits from these wider spreads. Many bond salesmen, traders and analysts who fell victim to layoffs or jumped ship from the big firms seized a lucrative opportunity at these smaller shops which pay commissions on trading profits.

Now the tables are turning. As the credit crisis has abated, reducing market volatility, bid/offer spreads have slammed shut over the past several months, squeezing profits at smaller brokerages.

Though boutiques are still hiring, the biggest banks and brokerages have returned to profit. They are taking greater risks and taking on staff.

Cheap credit is allowing big firms to trade bonds in volumes that swamp smaller rivals and compensate for lower profit margins.

In their search for new talent, some big banks are rehiring

NEW YORK, March 10 (Reuters) – Citigroup’s <C.N> sale of preferred securities on Wednesday passed a major test of market sentiment, analysts said, one year after prices of bank bonds and stocks plunged to multi-year lows.

Because analysts have viewed Citigroup as among the weakest of the behemoth U.S. banking groups, its sale of preferreds was a litmus test that may reinvigorate that sector of the market, some said.

“Citi has been perceived to still need to have some repairs done to its balance sheet,” said Sean Simko, fixed-income portfolio manager with investment management company SEI in Oaks, Pennsylvania.

“But it looks from the offering and demand today that the market perceives that the bank is moving in the right direction,” Simko added.

Citigroup Capital XII on Wednesday sold $2 billion of 30-year fixed-rate/floating-rate trust preferred securities, yielding a dividend of 8.50 percent, in line with expectations, according to IFR, a Thomson Reuters service.

Since banks’ stocks and bonds hit their multi-year lows, major financial institutions have repaid much of the U.S. government bailout funds used to shore them up during the financial crisis, investors’ risk appetite has recovered, and banks have cast aside the safety net of government-backed bond issuance to sell debt in their own right.

The shares and bonds of companies bailed out by the government climbed on Tuesday and Wednesday, fueled by speculation about money-making asset sales, cheap valuations and a recovery.

NEW YORK (Reuters) – Citigroup’s <C.N> launch of preferred securities on Wednesday is a potentially major test of market sentiment, one year after prices of bank bonds and stocks plunged to multi-year lows, analysts said.

Since those lows, major financial institutions have repaid much of the U.S. government bailout funds used to shore them up during the financial crisis, investors’ risk appetite has recovered and banks have cast aside the safety net of government-backed bond issuance to sell debt in their own right.

The shares and bonds of companies bailed out by the government climbed on Tuesday and Wednesday, fueled by speculation about money-making asset sales, cheap valuations and a recovery.

Citigroup Capital XII on Wednesday launched $2 billion of 30-year fixed-rate/floating-rate trust preferred securities, said IFR, a Thomson Reuters service. The securities were expected to price at about 8.50 percent, according to IFR.

Indications were that Citi’s issue would be “way oversubscribed,” wrote Andrew Brenner, managing director of broker dealer and money management firm Guggenheim Securities in New York in an email note earlier on Wednesday.

The price of an existing Citi 30-year bond maturing in 2037 rose to 97.5 cents on the dollar on Wednesday, up from about 95 cents early on Tuesday, according to MarketAxess.

Because preferred securities sit between bonds and equity, they are among the riskiest instruments that bondholders can buy and are low down the capital structure. If an issuer defaults, preferred holders are among those least likely to get paid.

NEW YORK (Reuters) – U.S. consumer confidence sagged to a 10-month low this month on worries about jobs and fears gridlock in Washington could hinder efforts to restart employment, curbing the economic recovery.

The housing market also remains rickety, data showed on Tuesday, further underscoring the economy’s fragility.

Confidence fell in February as consumers’ short-term outlook on jobs worsened, according to a report from an industry group, stoking analysts’ concerns that spending could falter and curb economic activity.

“There is growing disenchantment with the way (Congress) has been handling the problems. Not only the growing deficit, but their inability to get the job engine started,” said Carmine Grigoli, chief U.S. investment strategist at the equities division of Mizuho Securities USA in New York.

The Conference Board said its index of consumer attitudes fell to 46.0 in February, the lowest since April last year and down from a revised 56.5 in January. The reading was also striking for how much it undershot the 55.0 median forecast from analysts polled by Reuters.

“This is just a flat-out bad report,” said Tom Porcelli, senior economist at RBC Capital Markets in New York.

“I think if you’re looking for signals for consumer spending or jobs, there are no positive signals here,” Porcelli added. “In fairness we’re going through a pretty tough recovery and we know that, but I think this is a reminder that the recovery’s going to be very uneven.”

NEW YORK, Feb 23 (Reuters) – U.S. consumer confidence sagged to a 10-month low this month on worries about jobs and fears gridlock in Washington could hinder efforts to restart employment, curbing the economic recovery.

The housing market also remains rickety, data showed on Tuesday, further underscoring the economy’s fragility.

Confidence fell in February as consumers’ short-term outlook on jobs worsened, according to a report from an industry group, stoking analysts’ concerns that spending could falter and curb economic activity.

“There is growing disenchantment with the way (Congress) has been handling the problems. Not only the growing deficit, but their inability to get the job engine started,” said Carmine Grigoli, chief U.S. investment strategist at the equities division of Mizuho Securities USA in New York.

The Conference Board said its index of consumer attitudes fell to 46.0 in February, the lowest since April last year and down from a revised 56.5 in January. The reading was also striking for how much it undershot the 55.0 median forecast from analysts polled by Reuters.

“This is just a flat-out bad report,” said Tom Porcelli, senior economist at RBC Capital Markets in New York.

“I think if you’re looking for signals for consumer spending or jobs, there are no positive signals here,” Porcelli added. “In fairness we’re going through a pretty tough recovery and we know that, but I think this is a reminder that the recovery’s going to be very uneven.”

NEW YORK, Feb 23 (Reuters) – Most U.S. small businesses found loans were increasingly hard to get in early December and there is no sign that trend has shifted since, a research firm said on Tuesday.

As the economy slowly returns to growth after the longest and worst recession in decades, many companies are struggling to find a footing and to borrow to meet any upturn in demand.

A Greenwich Associates survey of small and medium-sized companies done in early December and released on Tuesday found that 58 percent that negotiated a new loan or refinanced an existing one in the previous three months said it was harder to borrow money than a year earlier.

“This latest data would say (credit) is getting tighter and getting worse,” said Steve Busby, senior managing director with Greenwich Associates in Stamford, Connecticut who helped compile the study. Credit conditions for such companies have been tightening for the past two years, he said.

Since data for the latest survey was collected in the first two weeks of December, there has been no indication of that trend leveling out, Busby said. The research firm plans to update the survey in early March, he added.

Forty-nine percent of the 560 companies participating in the study said banks’ continued unwillingness to lend had a negative impact on their own business or that of similar companies over the past year.

Yet there are some signs that banks may be getting ready to turn the lending spigots back on.

NEW YORK, Feb 18 (Reuters) – The U.S. commercial paper market grew for a second straight week, adding to other hints that U.S. economic activity continued to expand, Federal Reserve data showed on Thursday.

Businesses use short-term borrowing to finance restocking of shelves and to pay wages, so the increase in this type of debt issuance suggests companies are anticipating growth in demand.

For the week ended Feb. 17, the size of the U.S. commercial paper market, a vital source of short-term funding for companies’ day-to-day operations, rose by $3.8 billion to $1.138 trillion outstanding from $1.134 trillion the previous week.

“The underlying story if we step back and look at the underlying economy, is that inventories had been pared back for a long time and commercial paper outstanding had declined, and recently there has been some stabilization,” said Ray Stone, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey.

U.S. asset-backed commercial paper fell to $421.8 billion outstanding in the latest week from $427.6 billion outstanding the previous week.

After dwindling to roughly half its $2.2 trillion peak size over two years during the credit crisis, the commercial paper market started growing again for three months through late October. Since then, the expansion trend has faded and the market has been broadly consolidating.

Unsecured financial issuance rose by $4.9 billion after rising by $12.9 billion the previous week. (Reporting by John Parry and Chris Reese)

NEW YORK (Reuters) – A New York state manufacturing gauge published on Tuesday hit its highest level since October this month, while sentiment among home builders rose more than expected, signaling continued improvement in the U.S. economy.

But analysts said the data also showed a factory rebound might run out of momentum.

At the same time, a U.S. capital flows report showing China paring its Treasuries holdings underscored analysts’ worry that the recovery could be stymied by a steep rise in bond yields, making borrowing more expensive for homeowners and companies.

However, the generally stronger-than-expected economic data helped boost risk appetite and drove Wall Street stocks up more than 1 percent in afternoon trading.

The New York Federal Reserve said in a barometer of manufacturing in New York state rose in February as inventories jumped. Its “Empire State” general business conditions index rose to 24.91 in February, the highest level since October and up from 15.92 in January.

“The U.S. manufacturing sector shows no signs of slowing down in February,” said Kathy Lien, director of currency research at GFT in New York. “The strong number will lead the markets to expect a similar improvement in the Philadelphia Fed index, which will be released on Thursday.”

On the surface, the index appeared to reinforce the impression that industrial companies are continuing to bounce back after the long recession. Economists polled by Reuters had expected a February figure of 18.

NEW YORK, Feb 11 (Reuters) – Fundamental flaws in the financial system threaten the economic recovery in the United States and other major countries, prominent Wall Street economist Henry Kaufman warned.

“There are encouraging signs that the recent economic crisis has been at least arrested, though not solidly reversed, in the U.S. and in most other industrialized nations,” Kaufman said in an advance copy of a speech to be given at an investor conference in Carlsbad, California on Saturday.

“In contrast, the weaknesses in our financial system are deeply rooted,” Kaufman said. While banks are still hobbled by bad loans, “credit growth in the nonfinancial sector remains virtually at a standstill, and the economy is being sustained largely by massive borrowing by the U.S. government,” he said.

Kaufman became known as “Dr. Doom” for making the right call on higher inflation and interest rates when he was chief economist with Salomon Brothers in the 1970s and 1980s. Now president of financial consulting firm Henry Kaufman & Co Inc in New York, Kaufman more recently has criticized the Federal Reserve’s role in the lead-up to the global financial crisis and advocated much tougher regulations to reshape the banking system.

“We should not be lulled into complacency by current signs of recovery,” he said. Along with some bond analysts, Kaufman is concerned that interest rates might rise steeply, stifling economic growth, because of massive U.S government debt issuance and an end to the Fed’s purchases of mortgage-backed securities planned by the end of March.

If mortgage rates start to rise, the Fed may be forced to resume its purchases of U.S. government bonds, Kaufman said. “To neutralize pressure on the mortgage market, these purchases may need to be considerably larger than the size of the mortgage liquidation,” he added.

CONTAGION RISK

NEW YORK, Feb 3 (Reuters) – If the U.S. economy grows anemically, already stretched government finances will be crimped, potentially putting downward pressure on the top Aaa U.S. rating, said Moody’s Investors Service on Wednesday.

“Economic growth is very important to our assessment (of the sovereign rating),” said Steven Hess, senior credit officer in the sovereign risk group with Moody’s Investors Service in New York.

The Obama administration has based its projections of reducing the budget deficit over time on solid economic growth forecasts, but Hess warned that productivity might be lower than before the global financial crisis.

“Right now we are semi-optimistic that the U.S. will regain its previous dynamism, but if it doesn’t, then we have to think about what that implies for government finances,” Hess said in a telephone interview with Reuters.

“The implications would not be good if the U.S. were in for anemic growth for some time to come because the government could have problems for revenue growth,” Hess added.

The White House projects that the budget deficit for the fiscal year ending Sept. 30 will amount to 10.6 percent of gross domestic product, the highest level since World War Two.

The White House predicts deficits will fall to 3.9 percent by 2014, still above the 3 percent of gross domestic product that economists consider sustainable.