Today's Tidbits

MISC
From Bloomberg: “Corporate borrowing in the U.S. commercial paper market soared the most on record after the Federal Reserve began buying the debt directly from issuers as part of its effort to lure back money-market investors. U.S. commercial paper outstanding rose by $100.5 billion, or 6.9 percent, to a seasonally adjusted $1.55 trillion for the week ended Oct. 29, the Fed said today in Washington. It was the first gain in seven weeks, reversing a 20 percent decline during the previous six weeks…. ``Knowing the Fed will buy the longer term means companies will be able to refinance and take backtheir short-term paper if need be.'' American Express Co., the biggest U.S. credit-card company, and General Electric Co. are among the companies that sold commercial paper to the Fed since the central bank began the program on Oct. 27 to unlock the short-term debt market.”
End-of-Day Market Update
From Bloomberg: “U.S. stocks rose after the economy contracted less than forecast in the third quarter and investors speculated global interest-rate cuts will stem a further slump. Intel Corp., Disney Co. and JPMorgan Chase & Co. climbed more than 5.3 percent after the government said the economy shrunk 0.3 percent last quarter. Colgate-Palmolive Co. jumped 7 percent on better-than-estimated earnings. The advance added to a global rally after Hong Kong joined the U.S. in lowering borrowing costs and the Federal Reserve provided $120 billion to spur lending in emerging markets. The Standard & Poor's 500 Index gained 23.93, or 2.6 percent, to 954.02. The Dow Jones Industrial Average added 189.73, or 2.1 percent, to 9,180.69. The Nasdaq Composite Index increased 41.31, or 2.5 percent, to 1,698.52. Almost seven stocks rose for each that fell on the New York Stock Exchange. ``There weren't any nasty surprises,'' in the economic data, …``GDP was better than expected. The real economy didn't fall as
dramatically as the financial markets. The central bank cuts are bringing a little bit of confidence.'' All 10 industry groups in the S&P 500 advanced after the decrease in GDP was less than the 0.5 percent forecast by economists in a Bloomberg survey. The benchmark for U.S. equities extended its gain this week to 8.8 percent. Russia's benchmark index rallied 19 percent and South Korea's climbed 12 percent after the Fed provided $120 billion to spur lending in emerging markets. Hong Kong's Hang Seng Index surged 13 percent and Taiwan's Taiex jumped 6.3 percent after their central banks lowered rates. The gains in developing nations pushed the MSCI Emerging Markets Index out of a bear market following a three-day jump of more than 20 percent. The S&P 500 is still down 35 percent in 2008 and 18 percent in October, poised for its worst month since 1987. The Fed cut its benchmark rate by 0.5 percentage point to 1 percent
yesterday and has reduced it from 5.25 percent in the past 13 months, while also creating lending programs to channel more than $1 trillion into the financial system in an effort to stem a recession that threatens to worsen corporate profits. Earnings for the 309 companies in the S&P 500 that have reported third-quarter results have dropped an average of 12 percent from a year earlier, according to Bloomberg data. Still, 206 of the companies have beaten analyst estimates, compared with 97 that missed.”
From UBS: “Rates rose again today as the coupon curve steepened. Price action was negative in the face of disappointing, though consensus economic news. Clearly the sense that equity and emerging markets are finding a foothold, combined with the almost daily issuance of UST, is keeping prices on the defensive. UST 2 Year yields rose 2.4 bps to the 1.60%, while UST 10 Year rose 7.3 bps to 3.95%. UST 10 Years are flirting with the last line of support at 3.95% before heading towards the recent yield highs of 4.10%. The UST2Y10Y curve steepened 5 bps to 235 bps. UST 30 Years traded as though they were on a mission again today as UST10Y30Y sector flattened by 4 bps…The UST 5 Year auction was respectable, stopping at 2.825%, +1.1 bps v. the 1:00 bid side. The cover was 2.48x, indirect bidders were $6.73B (28.3%) and the direct bidders were $3.4B (14.3%). Dealers purchased $13.7B or 57.4%. Stocks closed +190 at 9,180. The CRB was -7.80 at 266.54. Oil fell $2.21/bbl to $65.29. Treasury volume picked up slightly and traded at -20% of the 30d mva, compared to yesterday's -27%.... Economy Remains Under Stress: Initial Claims were basically in line with expectations at 479k, while the 4- week mva fell 5k to 475.5k. Continuing claims were -12k to 3715k, better than the 3735k estimate. Q3 GDP was -0.3% (UBSe -1.0%, -0.5%e) with PCE cratering -3.1% (-2.4%e). UBS Economics downgraded GDP forecasts today in recognition of recent deterioration in the economy. 08Q4 is now forecast to fall -3.5% (-1.5%p), 09Q1 is estimated at -1.5% (-0.5%p) and 09Q2 should be 0.0% (1.5%p). San Francisco Fed President Yellen (alternate), breaking with the traditional post-FOMC "blackout" period after the meeting, stated that recent data on the economy is "deeply worrisome" and it will be a "long way" before "significant healing." She also noted that the credit crunch has outpaced easing and implied that the Fed could move rates below 1.0% (Bloomberg)…Swap spreads were mixed across the curve with the desk seeing decent two way flow from limited players. Short dated and long dated swaps widened, while the intermediate spreads narrowed. There were some mortgage related flows and also some deal related hedging. Agency spreads were similarly mixed with FNMA 2 Years widening 9 bps to 150 bps, FNMA 5 Years +2 bps to 143 bps, while FNMA 10 Years narrowed 3 bps to 12 7 bps. Volatility was down again today, led by gamma. Vol remains at very high levels, and if the market doesn't move then it becomes expensive to pay away the time value. The VIX remains at an extremely high level of 63.”
Prices as of 5PM (Based on Bloomberg)
Three month T-Bill yield fell 20 bp to 0.38%
Two year T-Note rose 3 bp to 1.56%
Ten year T-Note yield rose 11 bp to 3.97%
30-year FNMA current coupon fell 2bp to 6.04%
Dow rose 190 points to 9181
S&P rose 24 points to 954
Dollar index fell 0.38 points to 84.69
Yen at 98.6
Euro at 1.292
Gold fell $17 to $738
Oil fell $1.70 to $65.80