Market Chaos

Bond-trading How desperate are people to find safe places to put their money?  Desperate enough to panic-buy U.S. treasury bills and drive the yield down to 0.01% (No, not 1%.  Near 0%. Almost nothing).

That means investors would rather stash their money in safe U.S. treasuries with NO return than take their chances with the alternatives.  Laurentian’s Carlos Leitao says,” What you see is firms hoarding cash. Cash is not just king, it’s emperor.” (CEP)

Things got so silly today that S&P even thought it necessary to come out and affirm U.S. government debt was still AAA-rated.  Then we have gold, of course, which had it’s biggest 1-day dollar gain in history.

There is simply minimal confidence in non-government securities and non-hard assets at the moment.  Institutions are racing to cut their credit exposure wherever perceived threats exist.

Interestingly enough, even though Canadian bond yields have fallen big-time, the cost of funds for many mortgage lenders has actually gone up.  The spread on Canadian mortgage backed securities, for example, has risen 0.30% in recent days according to one source.  That means some lenders might actually be raising rates in the short term.

“Folks aren’t yet convinced the worst is over,” says BMO Nesbitt Burns’, Michael Herring. (Bloomberg)  A great many apparently agree.

  1. Late Update:
    * AP says…the yield on the 1-month Treasury bill was negative by late trading, and the 3-month Treasury bill also dipped below zero during the session. A negative yield shows that investors were willing to take a small loss in exchange for security.
    * Reserve Primary Fund, America’s oldest money-market fund, has lost 2/3 of its value thanks to bad investments and the Lehman Brothers bankruptcy. Money market funds are supposed to be ultra-safe and never break their base net asset values. Indeed, Reserve Primary is only the second fund in history to have its NAV drop below $1 a share. This has now got people wondering what other money-market funds might be affected
    * Washington Mutual, America’s biggest savings and loan, has reportedly put itself up for sale in an auction to the highest bidder. Incredible.

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