Pretty good summary of yesterday's events. Read on...
Good evening. We just experienced one of the most remarkable days in the history of the financial markets. While the 449-point decline of the Dow made headlines, the real story of the day was that bank lending seized up. Today’s events are truly astounding:
The Fed famously left the “target” Fed funds rate at 2.00% on Tuesday (The Fed funds rate is the rate at which banks lend to one another). Today in the real world, Fed funds were trading between 6.00% and 8.00%. That means, in the words of one bank CFO, “We’re not lending our money to anybody, even if they are a bank.”
90-day Treasury bills had one of their biggest volume days ever. The yield they were offering? 0.02%. That’s right. Investors were willing to accept 0.02% to park their money in a safe place for 90 days. That’s the lowest yield since World War II.
Swap spreads (the difference between LIBOR and Treasury yields) gapped out. Two-year LIBOR ended the day 1.30% higher than two-year Treasury yields. In 2006, that spread was 0.20%. Spreads are more than 50% higher than the highest levels ever seen. Ever in the history of swap spreads. Today’s move was the biggest in ten years.
All 86 members of the S&P 500 Financials Index declined. The Index fell 8.9% overall and option prices soared to record levels. Goldman Sachs (-14%) and Morgan Stanley (-24%), the only remaining independent brokerages on Wall Street, plunged the most ever.
Russia halted stock trading for a second day and poured $44 billion into its three biggest banks in a bid to halt the worst financial crisis in a decade.
Corporate debt yields rose more than they did during the stock market crash of 1987.
Gold posted it largest one-day price increase in history, reflecting investors’ panic, and their desire for any safe place to hold their wealth.
Fortunately, after a very rough start, mortgages closed the day at higher prices. Liquidity remains very strong in the conforming and government mortgage markets.
Mandatory mortgage trade prices are more than 50bps higher than best efforts prices, near the widest spreads that we have ever seen.
The spread between mortgage and Treasury yields had a wild day. This morning, mortgage yields rose 0.30% more than Treasury yields, but a bid came in to the mortgage market late in the day, and spreads closed the day mostly unchanged at 2.60%. Mortgage rates are low, and lock volume is very strong. Maybe we’ll have a refinance boom after all.
Experts say we're going through what's known as a lock, stock and barrel financial phase. You know what that is, and how that works? People are locked out of their homes, their stocks are worthless, and the oil companies have us over a barrel. That's how it works. -- Jay Leno
Thanks for your business. -- Tom Millon
About Capital Markets CooperativeCapital Markets Cooperative (CMC) provides mortgage bankers with the economies of scale and the expertise to reduce risk and maximize profit in the secondary market. Regarded as the premier secondary marketing specialist in the industry, CMC has worked with financial institutions nationwide to break traditional barriers in capital markets and take performance and profits to the next level. To date, CMC executives have managed more than $500 billion of mortgage volume. CMC board members are Tom Millon, Jeff Harry, and Harold Koegler. For more information about Capital Markets Cooperative, visit www.capmkts.org or call 904.543.0052 or e-mail
info@capmkts.org.
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