End-of-Day Market Update

From UBS:  "Yawner of a day...On a day with no economic data released, Treasuries rallied in the morning before tapering off after 10am. We saw very little flows during this quiet session...Swaps saw very little in terms of meaningful flows, and spreads were out marginally. Agencies saw some light buying in the front end and richened to Libor by 0.5bp across the board. Mortgages had about $1B in origination and $500M in selling, versus $1B in buying. MBS lagged swaps by 1.5 ticks on the day."

 

From Lehman:  "The yield curve flattened today, with 2s - 5s reversing some of last week's move, and driving the 5 year sector about a basis point richer on the day."

 

From Deutsche Bank:  "For the most part US markets have traded within narrow ranges overnight with there being little news of note. The very modest rise in the S&P500 (at least at the time of writing) hides a further decline in financials after AIG, the world's largest insurer by assets, filed a decline in CDS assets that was four times greater than previously forecast. That was offset by a lift in energy stocks as crude jumped to a one-month high after a temporary shutdown at a US refinery, coming on top of production cutbacks in the North Sea and Nigeria, reintroduced some supply-led nervousness into the market. Weakness in the financials, reflected in a further substantial widening in credit spreads (especially in Europe - the Itraxx crossover pushed out more than 20bps), gave a small bid to Treasuries."

 

From RBSGC:  "AIG discloses that it overstated value of Credit Default Swaps -- states this as 'material weakness' in its accounting. Fitch places AIG on negative watch.  The bond market traded in a responsive manner Monday, specifically to events in the stock market, while the price action was confined to the range that's dominated since January 23. Nothing was ventured; little was gained.  If we could point to one piece of 'inspirational' news it would be AIG's disclosure of (you have to love the euphemism) 'material weakness' in its accounting for its CDS portfolio and the ability right now to provide a more accurate value. In the grand scheme of things this points to problems that we 1) suspect are not limited to AIG, and 2) will keep credit risk tolerance on tenterhooks for a while to come. This certainly contributed to the early weakness in stocks, which provoked early strength in the bond market."

 

From Bloomberg:  "The Standard & Poor's 500 Index added 5.46 points, or 0.4 percent, to 1,336.75 at 2:23 p.m. in New York after earlier falling as much as 0.8 percent. The Dow gained 28.13, or 0.2 percent, to 12,210.26, erasing a drop of as much as 113 points.  The Nasdaq Composite Index increased 16.83, or 0.7 percent, to 2,321.68. About four stocks advanced for every three that fell on the New York Stock Exchange... Energy shares in the S&P 500 gained 32 percent in 2007 for the steepest advance among 10 industries as global economic growth boosted demand around the world...Oil prices rose to a one-month high after Valero Energy Corp. shut a Delaware refinery because of a power failure late
yesterday. Crude for March delivery rose $1.97, or 2.2 percent, to $93.74 a barrel...Gold futures rose to a one-week high after energy costs rose, boosting the appeal of the precious metal as a hedge against inflation. Copper climbed to the highest in more than three months as falling production and slumping inventories heightened speculation that metal supplies will trail demand."

 

Three month T-Bill yield rose 3 bp to 2.25%.

Two year T-Note yield fell 1 bp to 1.91%

Ten year T-Note yield fell 3 bp to 3.61%

Dow rose 58 to 12,240

S&P 500 rose 8 to 1339

Dollar index fell .13 to 76.55

Yen at 106.94 per dollar

Euro at 1.452

Gold rose $1 to $924

Oil rose $1.86 to $93.63

*All prices as of 4:43pm