The Wall Street Journal-20080124-Treasurys Reverse Course On Hope for Bond Insurers
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Treasurys Reverse Course On Hope for Bond Insurers
Treasury prices sank amid a late revival for U.S. stocks on anticipation of some good news for the bond-insurance industry.
The selling momentum in Treasurys picked up in the afternoon on news that banks party to contracts with bond insurers had met with the New York state regulators on a rescue package for businesses hit by subprime-related losses.
The news propelled stocks higher and wiped out the massive gains the government-bond market had seen over the past 24 hours when the Federal Reserve's rate cut Tuesday failed to stem losses and rebuild confidence in stock markets. Also driving investors into the safety of government bonds were fresh concerns over write-down at banks.
At 3 p.m., the benchmark 10-year Treasury note was up 16/32 point, or $5 per $1,000 face value, to yield 3.425%. But an hour later, the 10-year yield, which rises when prices fall, had risen to 3.541%, as investors reversed their safe-haven bets on the bond-insurer news, which was reported by Bloomberg News.
The cost of protecting bond insurers' debt against default tightened sharply, by around a full percentage point, as investors welcomed the banks' involvement in the process.
Scott MacDonald, director of research at Aladdin Capital Holdings in Stamford, Conn., said it's in the banks' interest to help out the bond insurers, which have been struggling to shore up their core capital as ratings companies cut or threatened to cut the triple-A ratings crucial to their business.
Investors were concerned that loss of the top ratings could unravel hedges set up with the bond insurers which would require banks to book further losses. "There's a certain incentive to go find the money now," Mr. MacDonald said.
AUCTION RESULTS
Here are the results of the Treasury auction of four-week bills. All bids
are awarded at a single price at the market-clearing yield. Rates are
determined by the difference between that price and the face value.
Applications ..................................... $59,504,576,000
Accepted bids .................................... $15,000,076,000
Accepted noncompetitively ........................ $379,076,000
Foreign noncompetitively ......................... $95,000,000
Auction price (rate) ............................. 99.863889(1.750%)
Coupon equivalent ................................ 1.782%
Bids at market-clearing yld accepted ............. 67.05%
Cusip number ..................................... 912795C82
The bills are dated Jan. 24, 2008, and mature Feb. 21, 2008. CME Raises Some Margins
CME Group Inc. said that traders will pay higher margin requirements for some of the futures-exchange operator's more-popular products due to big market moves in recent days.
The higher margins, which will be applied to the exchange's short- term interest rate futures contracts, were effective at yesterday's close.
Margin requirements will rise, for example, on the exchange's popular Eurodollar contracts, the most actively traded futures market. It will cost traders an initial fee of $1,013 per contract to trade 2008 Eurodollar futures, up from an $878 fee.
-- Howard Packowitz
