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Friday, February 20, 2009


two points

john jansen is as ever the trenchant commentator upon all things credit, and there are two observations of his from this post to remember.

Treasury supply is a constant theme and has come to dominate trading. The Philadelphia Fed Manufacturing survey touched a cycle low yesterday. The initial claims data and the continuing claims data reflect an ever weakening economy. We can not even say that we are scraping along the bottom as the bottom has not been set yet.

And take a look at the equity market here and around the globe. Markets are at multi year lows. In concert with the economic data one would expect yields of be galloping lower. They are not and remain well off the historical lows attained in December when the 10 year traded to 2.05 percent and the 30 year traded around 2.50 percent. The failure to approach the lows simply reflects the enormous appetite of the Treasury for funding.

Observe what they are issuing next week. On Monday they will auction $31 billion 3 month bills and $30 billion 6 month bills. Tuesday will bring a sale of $42 billion 2 year notes and Wednesday brings $32 billion 5 year notes. Thursday the Treasury will reintroduce the 7 year note to investors with a chunky $22 billion offering. In total the Treasury will raise an incredible $ 155 billion next week. Admittedly, a chunk of it is low risk bills but the point is that the supply is there and it will be a challenge for the markets for some time.

the flight to safety bid is there as the s&p tests 740 -- but treasury is simply overwhelming it with new supply and preventing yields from falling. what happens when treasury tries to sell these sorts of schedules into a calm market? or is that possible?

secondly --

there had been talk earlier in the week of Germany bailing out some of the weak sisters in Europe. Various speakers have squelched that thought.

The German Finance Ministry has said that counties facing deteriorating fiscal conditions must take their own actions.

ECB Council member Stark noted the Maastricht Treaty prohibits such bail outs.

Mr Trichet noted that there are no weak links in Europe, including Ireland.

who knows how this brinksmanship ends. but if germany will not step into the breach the prospect for a cascading collapse feeding from eastern europe to west increases dramatically. the swiss franc is decoupling from the dollar on concerns over the sovereign exposure through its massive banks to poland et al.

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hey gm have a banking question for you.

I've arranged to buy a wind turbine from Germany. I have been following the exchange rate between the dollar and euro for a few weeks and this morning it was in my favor. So I stroll on down to BOA and they have an exchange rate almost .08 cents higher than the market. Is this normal? I would have thought that a bank couldnt do that since they are a country. Shows my youth and how naive I am I suppose.

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yes -- they ding you for what amounts to a transaction fee, just like any currency exchange. :(

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