Hannibal Lechter - Will babysit for food.
TALK FROM THE TRENCHES: US MARKETS FOCUS ON GSE'S, TIGER WOES
15:05 EST 03/30
By Isobel Kennedy
NEW YORK (MktNews) - For a second day in a row, the U.S. credit markets seem more focused on the trials and tribulations of the U.S, agencies and the beleaguered Tiger Management Fund than on interest rates in general.
Once again, Thursday's session was largely dominated by rumors and speculation, not hard facts.
In the agency market, spreads came under pressure on erroneous and totally unsubstantiated rumors about congressional bills that could affect the government-sponsored enterprises. Of course, this is just the type of environment in which rumors flourish and the market get roiled for no real reason. Players say they expect this skittish environment to continue for a while.
Some of the market rumors about agencies may be stemming from events in the U.S. Senate. On Thursday it was debating television satellite loan guarantees. Several members were using the debate to mention the expansion of GSE's. In fact, a senator from Wyoming joined in the debate, saying Farm Credit should not get into the business of financing TV satellites in rural America. Is he kidding?
In addition, the "Housing Finance Regulatory Improvement Act," which would merge the oversight of the housing GSE's into one agency, remains "in committee" awaiting passage by Congress at some point. It was rhetoric surrounding this legislation that caused all the turmoil in the agency markets last week.
Also Thursday, U.S. Senator Phil Gramm, the influential chairman of the Senate Banking Committee that would deal with GSE's, was on the Senate floor making a speech. He called for agencies, such as the Rural Electrification Administration, to stick to their charters instead of making unrelated investments.
Even innocent U.S. agencies are caught in the fray. On Wednesday, Tennessee Valley Authority was forced to postpone a $1 billion 30Y global issue due to widening spreads.
TVA is a wholly-owned government corporation chartered by Congress in 1933 to provide electricity to the mountains in the USA! They can issue up to $30B in private debt in the market and can also borrow from the U.S. Treasury via the Federal Financing Bank. But at the end of TVA's 9/30/99 fiscal year, any debt with the FFB had been paid off, effectively withdrawing their government credit line.
TVA is not considered a GSE and so will probably not be investigated at this summer's congressional hearings. So why did they have to cancel their deal? Guess it proves once again we are all in trouble when Congress is in session!
Another problem for the agencies is lurking out there. There have been reports that the results of the U.S. Treasury's 1999 review of the agencies will be out in two weeks. While Treasury routinely reviews the agencies through its Office of GSE Policy, who knows what could come out this year?
Just a short while ago, the Tiger Management Fund finally confirmed it will close down its operations and return capital to investors. "We have already largely liquefied the portfolio and plan to return assets ...," wrote Tiger's chief Julian Robertson in a letter to his partners dated March 30.
Earlier Thursday there was much speculation about the fund. Some came in response to a WSJ report that Tiger was contemplating transferring $4.5B in assets to Moore Capital Management, another hedge fund, for that fund to liquidate on a gradual basis. But Moore Capital issued a statement that it had not been approached by Tiger and would not be liquidating Tiger's positions.
Of course sources were not sure why Tiger might do that in the first place. There are certainly lots of legal and financial rules that probably make such a transfer a lot more difficult than it sounds. But at any rate, one joker out there said if the transfer occurred it would be like asking Hannibal Lecter to babysit your kids!
On Thursday morning there was an unsubstantiated, but plausible, rumor that a major U.S. bond fund got wind of Tiger's potential portfolio liquidation ahead of others. That fund is said to have sold out of Freddie Mac paper Wednesday to go into GNMA paper. Coincidentally, GNMA paper did outperform yesterday on very good buying, sources say.
And just because Tiger said it has liquidated most of its holdings, the street will remain alert for any selling of fixed income and equity holding that could be tied to that account, players say.
By the way, Julian Robertson's poor performance in the stock market reflects his reliance on "old economy" stocks and the shunning of the "new economy" go-go stocks. And while it may not be much consolation to him right now, it is worth noting that in this regard he made the same mistakes as the Oracle of Omaha, Warren Buffet. And Julian was as honest about his mistake as Warren was. It has been reported that in a letter to his investors in October 1999, he said, "these results stink."
At any rate, the woes of the GSEs and the Tiger fund kept spreads under pressure. In fact, 10Y swap spreads are currently at +124 bps but some fear they could get out to +150.
Talk From the Trenches is a daily compendium of chatter from Treasury trading rooms offered as a gauge of the mood in the financial markets. It is not hard, verified news. |
