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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: BubbaFred who wrote (64815)	7/19/2003 9:50:15 PM
From: Real Man	Read Replies (1) \| Respond to of 94695

Yep. That's why I keep telling - watch the bonds. They are tanking. At least 110 Trillion of these are interest rate derivatives. They can manipulate smaller markets - stocks ($ 2 Trillion), currencies ($30 Trillion) the way they want, while the game in bonds is going, but when bonds tank, the game is over.

To: BubbaFred who wrote (64815)	7/19/2003 10:06:02 PM
From: Real Man	Respond to of 94695

Friday July 18, 4:03 pm ET By Nancy Leinfuss (Updates quotes in 6th, 8th paras) NEW YORK, July 18 (Reuters) - The European Central Bank and or some of its member national central banks were selling U.S. agency debt on Friday, market sources said, forcing yield spreads to widen significantly in an already jittery market, traders said. Spreads later improved as investor buying kicked in, traders said. "This morning we have indeed seen selling by ECB banks," the trader said, noting sales totaled "several hundred million dollars." He added that the flows were "definitely higher than usual," and that there was also some buying of agencies by domestic accounts. The ECB selling added to the accounting- and regulation-related woes of U.S. agencies Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News) that have rocked the agency market for the last several weeks. Rumors that the ECB may encourage its member banks to limit their holdings of Fannie Mae (NYSE:FNM - News) or Freddie Mac (NYSE:FRE - News)debt and may be looking to unload some its own supply of U.S. agency debt ran rampant through the market, traders said. A federal probe of Freddie Mac's accounting practices and restatement of earnings was launched last month. Several members of Congress have called for more regulation of the housing finance giants. "The ECB rumors blindsided the market," said one agency analyst. "Spreads sure blew out this morning but later improved; however, the risks remain toward widening," he said. "It's been a very skittish market lately. It's traded on vapor a lot this week. Any kind of rumor or unsubstantiated allegation spooks the market," the analyst said. The European Central Bank declined to comment on the rumors. A spokesman said he was aware of the market developments. "We do not comment on markets or rumors," he added. Spreads on agency debt widened in the morning by as much as 5 to 6 basis points, then erased some of the weakness as buyers came in, traders said. This type of widening of spreads is unusual for this asset class, traders noted. "There's been some decent buying of agencies at the wides and spreads have come in but they still remain weaker overall," an agency trader said. Traders said the largest concentration of Friday's selling took place in maturities under 10-years, specifically among two to three- year securities. Some traders said Asian central banks were among other sellers of agency debt overnight, while another said some bids were garnered out of Europe. SHALLOW POOL Traders were unsure how big the ECB's holdings were, leading to uncertainty over how much more selling it might have to do. Dealers noted the ECB has limited foreign reserves donated by its member banks. At the end of June, this pool amounted to 39.17 billion euros in total, with 31.41 billion of that in foreign currency reserves. One investor said the market believes agency debt is being sold from this pool and agencies are not a big allocation within the internal investment pool. "There is a symbolic impact" to this selling, said one investor, who pointed out the market fears such a limit on agency holdings would be imposed on member banks. "They might increase the risk weighting out to member banks (of the ECB)." The national central banks of the euro zone hold 323.07 billion euros of reserves, with 172.14 billion of the total in foreign currencies.