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To: Still Rolling who wrote (68665)	10/1/1998 7:31:00 PM
From: LWolf	Respond to of 176387

Craig.... re: various movements to contain this economic crisis. WSJ Interactive commentary on credit markets had a link into Briefing.com's Bond Ticker. The insights from some of today's commentaries seems to indicate that the fellows in the fed are realizing they're facing a pretty significant problem. *************** interactive.wsj.com Thursday, October 1, 1998 Bond Ticker Real-time commentary covering releases, events, and flows affecting the Treasury market, from Briefing.com. Updated: 01-Oct-98 15:25 ET: 30-year: +40/32...4.882% With the Dow now down 250, Treasuries have rocketed to new session highs. Forget the 4 handle on the bond, the 5-year has its sights set on a 3 handle, just 7 bp left to go. Many analysts argued earlier this week that the Fed should not cut rates by more than 25 bp for fear that such supposedly dramatic move might "spook" the markets. It looks to us like the markets are plenty spooked anyway, which begs the question: when is more help on the way? As we have been arguing throughout the day, the probability of an intermeeting easing increases with each day that financial conditions deteriorate. Credit risk spreads are widening again, bank stocks are down big, and the Fed's loan officer survey tells us that lending standards are being tightened. There's no ambiguity in this message. Digression: Cleveland Fed President Jordan dissented in favor of tightening at the August 18 FOMC meeting. What planet? 14:40 ET: 30-year: +37/32...4.888% Overlooked by many in the FOMC minutes was a small note at the end of the document: "On September 21 the Committee held a telephone conference to discuss recent developments in domestic and international financial markets and their implications for the U.S. economy. The consultation was held as background for Chairman Greenspan's testimony on September 23 before the Senate Budget Committee." It was clear when Greenspan testified on September 23 that he was confident that the Committee would vote for an easing on September 29; now we know that he was not just confident, he was certain. Phone conferences of the FOMC are not normal occurrences; in fact, they are about as rare as intermeeting policy changes. We are clearly not in normal times. 14:05 ET: 30-year: +36/32...4.889% The FOMC voted 10-1 for steady policy and a symmetric directive (no bias) at the August 18 meeting. Cleveland Fed President Jordan dissented once again. The symmetric directive was no surprise since Greenspan had pretty much announced it back on September 4. So much has changed since August 18 that it is not worth spending much time analyzing these minutes, but it is notable that even at that time, Fed officials were noting increasing credit risk spreads and substantial risks to growth. If they were worried then, they should be alarmed now. The market is telling the Fed that a severe slowdown is a near certainty and a recession is very significant risk. Policy makers have already responded with a 25 bp easing, but more is on the way, perhaps soon. Treasuries continues to rally, led by the front of the curve as the Dow decline continues apace (-190). 13:40 ET: 30-year: +31/32...4.899% The 2-year note is now trading about 105 basis points below the Fed funds rate, the same level that was seen on June 6, 1989. No doubt that back in 1989, we were marvelling that the 2-year was trading over 100 bp through the funds rate -- who would buy the 2-year at such rich levels? Smart money, as it turned out. The Fed proceeded to ease 24 times, taking the funds rate from 9.88% down to 3.00% in just over three years. An easing of the same magnitude in this cycle would produce a -1.38% funds rate, so that's probably too much to hope for. But the lesson in 1989 was that the level of yields relative to the funds rate contains valuable information about the likely course of policy. Had you bought that 2-year note at a seemingly insane 105 bp through funds on June 6, 1989, you would have enjoyed watching the 2-year yield fall to 6.86% and the funds rate plunge 400 bp over the proceeding two years. 12:00 ET: 30-year: +25/32...4.909% In the good timing department: today's Bond Brief discussed the possibility of a credit crunch; now the Fed has released its quarterly survey of bank loan officers. For the first time since the last credit crunch in the early 1990s, the survey found that there was a widespread tightening of loan standards. This is particularly notable since the survey was conducted before the most recent market turmoil. In noting the tightening of standards, the banks cited the less favorable economic outlook and a desire to reduce risk. Some softening in demand for both consumer and business loans was also noted. This survey provides still more evidence that the economy is at risk due to an emerging credit crunch. Though a crunch of early 1990s proportions appears unlikely, this tightening of credit conditions appears serious enough to produce a substantial economic slowdown in 1999. Those who continue to look back to economic strength in Q3 are talking about ancient history. These credit trends are all that matter now.