Weekly Market Update: August 21, 2008

Medium/Long-Term Rates: The BBI-20 decreased 3 bp to 4.64%. The 20-year AAA MMD decreased 3 bp to 4.41%. The 10-year Treasury decreased 5 bp to 3.84%.

Short-term Rates: The SIFMA Index reset at 1.65%, a 1 bp decrease from 1.66% the previous week. The 1-month LIBOR Index reset at 2.47%, a 1 bp increase over 2.46% the previous week. The spread between 1-month Treasuries and 1-month LIBOR widened 3 bps to 74 bp, versus 71 bp the previous week.

Commentary: Treasury yields decreased between 4 bp and 10 bp progressively through the 5-year maturity, and decreased by 5 bp to 6 bp through the 30 year maturity. Municipal yields decreased by 5 bp through the 10-year maturity, and decreased by 2 bp through the 30-year maturity. Municipal to Treasury yield ratios decreased to 93% from 94% for 10-year maturities, and increased to 105% from 104% for 30-year maturities.

New Issue supply was moderate, and received with ease by all sectors through mid-week. Retail buying dominated placement of high grade names in short maturity years. The Secondary Market also exhibited two-way flow in short sector high grade names, and showed slightly widening spreads in lesser rating categories and longer maturity years. The Municipal market remained directionally coupled with the Treasury market throughout the week, with daily sessions exhibiting only gradual adjustments in yield. Comments by the Fed Chairman indicated that the condition of the economy may outweigh inflationary concerns for the balance of the year, suggesting to many market participants a strong possibility of no Fed Funds rate increases in the fourth quarter.

The coming week new issue supply is moderate. The economic data release calendar is full, including Durable Goods, Personal Income, and GDP first revision.
 

Click to access Weekly Market Update (PDF)