Bloomberg:Treasuries Gain as Asian Stocks Fall

[citizen k]

Treasuries Gain as Asian Stocks Fall, Feeding Demand for Debt
By Wes Goodman                                                             
April 21 (Bloomberg) -- Treasuries advanced for a second day as declines in Asian and U.S. shares led investors to trim bets that inflation will accelerate.     
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, narrowed to 1.22 percentage points, the least in a month. The Federal Reserve plans to buy Treasuries today and again on April 23 as part of its plan to push down borrowing costs.     
"Yields may go lower in the next few days," said Kei Katayama, who oversees $1.6 billion of non-yen debt as leader of the foreign fixed-income group at in Tokyo Daiwa SB Investments Ltd., part of Japan's second-biggest investment bank. "The economy is still in very bad shape."     
The yield on the 10-year note fell two basis points to 2.82 percent as of 10:16 a.m. in Tokyo, according to BGCantor Market Data. The price of the 2.75 percent security due in February 2019 gained 1/8, or $1.25 per $1,000 face amount, to 99 3/8. A basis point is 0.01 percentage point.     
MSCI's Asia Pacific Index of regional shares slid 2.2 percent, the biggest decline in almost two weeks, following a 4.3 percent drop in the Standard & Poor's 500 Index yesterday.     
The Fed plans to buy Treasuries maturing from February 2016 to February 2019 today and those due from May 2012 to August 2013 on April 23. It announced in March that it plans to buy $300 billion of the securities within six months.     
Credit Markets     
Interest-rate derivatives imply government and central bank efforts are thawing credit markets.     
The difference between the rate banks charge for three- month dollar loans relative to the overnight indexed swap rate, the so-called Libor-OIS spread, narrowed to 91 basis points, the least since September.     
The London interbank offered rate, or Libor, for three- month dollar loans, dropped to 1.1 percent yesterday, a level not seen since January.     
Average 30-year fixed mortgage rates fell to 4.82 percent on April 16 from 4.87 percent a week earlier, according to Freddie Mac, the McLean, Virginia-based mortgage finance company. Rates are about 2 percentage points more than 10-year Treasury yields. The figure has averaged 1.82 percentage points for the past five years.     
Treasuries gained the most in a month yesterday as concern about deepening bank credit losses spurred demand for the relative safety of government debt.     
Bank of America     
U.S. government securities rose for the first time in three days as Bank of America Corp. increased its reserves for loan losses and doubled its charge-offs for uncollectible loans. JPMorgan Chase & Co. said banks will likely realize about $400 billion more in losses on soured assets.     
Citigroup Inc.'s credit losses are growing at a "rapid rate," Goldman Sachs Group Inc. said in a report yesterday.     
Bank of America joined Citigroup, Goldman Sachs, and JPMorgan Chase in reporting better-than-expected earnings for the first quarter.     
"There's a general feeling it's going to be harder to reproduce these results in the second quarter," said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA LLC, one of the 16 primary dealers that trade with the Fed. "The forward-looking statements are a bit cautious and they're talking about credit losses."     

Is the falling LIBOR rate a sustainable indicator of recovery of credit markets?

[The Minsky Moment]

Is the falling LIBOR rate a sustainable indicator of recovery of credit markets?

It's a sustainable indicator that the market believes that the Fed is standing four square behind the banking industry, and hence the risks in the interbank lending market are minimal.  It suggests the market is pricing in the de facto nationalization of the banking system.

The TIPS spread news is interesting.  I think I may buy more TIPS now.