Mr. Paulson will be the key today, as he is expected to open the TARP to car, credit card and student loans, and heaven knows what else. More importantly, a separate facility will buy mortgage-backed securities. Bottom line is money will come out of Treasuries and into riskier assets.
Futures rallied because the hope is that the buying of mortgage-backed securities will unclog the MBS market and result in lower interest rates. There's some evidence that might happen, as the coupons on 30-year MBS are indeed down about 30 basis points this morning.
What about the stock market? The general feeling last night was that there was no need to be a hero after a 1,000 point rally in the Dow. However, the buying of mortgage-backed securities may be an additional impetus for the rally to continue.
- Fed Unveils Plan to Support Mortgages, Consumer Credit
1) What am I missing here? Goldman is upping its plan bond offering to $5 billion. Goldman became the first firm to tap the FDIC's Temporary Liquidity Guarantee Program, which guarantees senior unsecured debt. It will be offered at 220 basis points over comparable 3-year Treasuries, which would put the yield at roughly 3.6 percent.
But wait a minute: many of the Goldman (non-government backed) preferreds are trading at nearly 9 percent yields. Apparently, government backing is worth an awful lot in this environment.
JP Morgan just announced they will also be tapping the new program as well. Goldman up 7 percent pre-open. Other financials also up about 6 percent: JP Morgan, Citi, UBS.
2) Another bid bites the dust. BHP Billiton gave up its $66 billion all-stock bid for Rio Tinto , a project on which untold man-hours and oceans of analysis had been expended in the nine months since a bid was made. BHP cited the continued deterioration of near-term economic conditions. BHP said they did not want to take on the greater debt levels of the combined group, and did not want to expend the time to divest assets, which would have surely been required. BHP up 16 percent, Riodown 33 percent.
3) Still no sign of improvement in housing. DR Horton , the largest homebuilder in the U.S., reported that for the fourth quarter ended September 30, the cancellation rate was 47 percent (as bad as it has been all year).
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