The Weeks (s) Ahead

Sunday 12/05

Winging west and using wi-fi on the plane... if you have not read the Sunday NYT there is a very good front page article on the state of states : Mounting Debt by States Stokes Fears of Crisis ...link below http://www.nytimes.com/2010/12/05/us/politics/05states.html?_r=1&ref=us.

Although there is nothing new in the article, being on the front page of the NYT puts it in America's focus. Look for muni deterioration from this article.

But let's talk markets first...the employment number--- +35k vs. + 150k expected made the shorts cover driving the 10 yr treasury from a 3% to a 2.92 and then back again ...virtually unchanged on the day... the long bond fell a point as yields rose about 6bps to a 4.31. The treasury sells the monthly 3's,10's and 30's this week with  liquidity becoming scarce. Rates seem poised to go higher in order to clear the auctions. Munis will have a tough time based on percentages and lack of muni buying power this close to year end. Spreads will have to widen from the leaden MMD-- or will there be another drastic change in MMD as the week progresses? If treasuries fall hard then munis should follow.

Back to the article. It discusses avenues the states and municipalities have taken to trim budgets: defer pension payments, trim medicare services, cut police and cut food stamps. The rating agencies are somewhat sanguine about the whole deal saying these entities are still better than similarly rated corporations. Well once late, always late I say. The markets have already begun to pick the winners and losers.. just watch spreads.

Monday 12/06

Here we are Monday morning with the treasury market on the upswing from an up and down day Friday. Currently the 10 yr has rallied to a 2.95 yld from a 3% close.  Bernanke announced that the Fed may do more bond purchasing than the original $600 bil. Get ready for the roller coaster ride again. So far it appears as though the street has learned a lesson from the last QE announcement as the treasury market is not rallying too hard in front of the treasury sales this week. Hopefully the street won't get TOO long in the anticipation of a QE3!! It did not turn out too well last time.

Another big calendar in munis this week. $11bil+ lead by BABs. Unless the treasury market stages a big rally as the week goes on tax exempts will slog along and probably give up some ground to find buyers at this time of year. Look for spreads to widen in the BAB world.