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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (65937)	8/7/1999 9:46:00 AM
From: Les H	Read Replies (1) \| Respond to of 132070

Dollar swap spreads retrench after going to extremes CHICAGO, Aug 6 (Reuters) - U.S. dollar swap spreads softened Friday after hitting their widest levels in over a decade early Thursday, but dealers and analysts generally looked for the widening trend to resume. ``We're definitely seeing a retrenchment, a little bit, but I wouldn't anticipate that continuing too much. What's driving them in is you are finding some people looking to receive fixed,' said Steven Lazarus, managing director at Credit Suisse First Boston Corp. Ten-year swap spreads retreated to 106 basis points midmarket after trading as high as 117 basis points early Thursday, dealers said. ``In general there's not a lot of activity that's driving them in,' Lazarus said. ``You're going to continue to have these wild swings because there is not as much depth to the market right now.' Rampant market rumors Thursday suggesting that a U.S. bank or trading firm had suffered a big loss in over-the-counter derivatives sparked concerns of a possible counterparty default and helped drive already-historically wide swap spreads to even greater extremes. But by the afternoon, swap spreads were already starting to retreat, and market participants on Friday downplayed the previous day's rumors. ``It looks like in the short-term maybe we overextended a little bit,' said Charles Reinhard, bond market strategist for ABN AMRO Inc. ``Anything that reminds people of the collapse of Long-Term Capital Management could create a final panic move, and I think that's what happened.' Swap spreads, which reflect the interest rate premium that a double-A-rated corporation has to pay over U.S. Treasuries, generally widen when credit concerns escalate. ``When you have markets like this, you're going to get people starting those rumors,' said Lazarus. ``Sometimes you do find some truth to them, but in this market, I just don't think that people had that big of positions to take that kind of hit.' Dealers instead have attributed the current widening trend in swap spreads to a rush of corporate supplies to market by treasurers seeking to avoid Year 2000 computer problems at a time when the available supply of government securities is shrinking due to the federal budget surplus. ``Longer term, once the short-term Y2K situation clears, I think everybody can agree there is enormous value in the market,' Reinhard said. ``Spreads are probably wider than what should exist given the actual credit risk in the economy and so as a result we can expect to see the corporate bond complex do a little bit better, which could bring in swap spreads. But in the short term, it's anyone's guess.' Seven-year spreads finished at 101-1/2 basis points, five-years at 93 basis points, three-years at 86-1/2 basis points and two-years at 73-1/2 basis points.