Bond Market Monday - We Have Learned NOTHING!

As today's tile might suggest, I am thoroughly dismayed at the complete ineptitude our (yes, I am obviously from the states) elected officials are displaying.

(NY Times) Leaders of the Congressional committee charged with finding at least $1.2 trillion in deficit reductions conceded on Monday that panel members had failed, setting up what is likely to be a yearlong political fight over the automatic cuts to a broad range of military and domestic programs that would go into effect starting in 2013 as a result of their inability to reach a deal.  In a statement, the panel’s leaders, Representative Jeb Hensarling, Republican of Texas, and Senator Patty Murray, Democrat of Washington, said, “After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.”

Really?  Imagine if you will a world in which these same officials could read the paper:

(WSJ) A selloff in euro-zone bonds continued on Monday, as investors shrugged off the election of a fiscally conservative government in Spain and continued to clamor for bold action by European policy makers. A day after Spain's Popular Party won a sweeping victory over the ruling Socialists in the general election, Spanish borrowing costs approached their highest levels since the European debt crisis began. Italy's 10-year yield continued to rise, as did yields for Portugal, Ireland and Greece. The yields on the highest-rated European bonds also pushed upward, with the Netherlands, Austria, Finland and France all rising.  The German government repeated its view on Monday that the euro-zone crisis was caused by a lack of fiscal discipline and economic competitiveness in some nations on the euro periphery—and that the solution therefore lies in overhauls in those countries, not in ECB bond buying or collective European debt issuance.

Sound familiar?  The US government seems focused on going down the same failed road as pressured European countries.  I guess its a good thing our GDP is much bigger and our printing presses are even bigger than that!  The US is rapidly going from the "last best hope" to the "least worst refuge".  Its only a hop, skip and stumble away from "Treasuries, yeah they used to be safe".  Imagine what the rating agencies might rate US debt if they weren't under scrutiny from the government - do you really want to downgrade the country that regulates you and is investigating you?  No sir, not me.

Standard & Poor's Ratings Services said its ratings on U.S. sovereign debt wouldn't change because of federal lawmakers' latest failure to reach a budget deal--as long as Congress continues to follow the rules it set in August.The short statement came after a congressional deficit-reduction committee tasked with slashing the U.S. budget gap failed to reach an agreement, a move that triggers mandatory cuts to military spending and some social programs starting in 2013.S&P still rates the U.S. at double-A-plus, the second-highest possible rating, and has a negative outlook on the debt. The credit-ratings service shook markets in August when it downgraded the country's then-sterling credit status, citing political gridlock that was hindering lawmakers' ability to significantly reduce deficits

Moody's Investors Service confirmed Monday its triple-A rating on the U.S., saying that the failure of the congressional supercommittee to reach a deficit-reduction agreement isn't decisive, according to a company representative."The rating for the U.S. government is Aaa with a negative outlook," the rating company said."As Moody's stated on Nov. 1, the deliberations of the Joint Select Committee would be informative for the rating analysis but not decisive, and failure to reach an agreement would not by itself lead to a rating change for the U.S. government," Moody's said Monday.

It's almost laughable.


In any event, here we are.  "Risk free" had a good day being the global safe haven.  Curve flattened a bit as buyers bid the long end.

Credit markets were somewhat silent as the holiday shortened week is not known for issuance - even at these lower absolute rates.  CDX IG was out 3bps, cash was weaker and thin.  CDX HY down a buck change to $88.75.  Financials continued to take it on the chin - out 5-30bps in the 5yr.  BAC and Goldie taking it the hardest - out around 30bps.  We are starting to see some interesting trading/swap opportunities in some of the financial names as you can shorten and pick (at the same level in the cap structure to boot).  MS is just one example here.  If you are going to own financials, optimize your positions (well, you should always be doing this, but.....)!

Volume in credit was lower and negative, reflected in today's Trace data:

Morgan Stanley printing all over the most actives with Jefferies absent (was one of the most active in convert space).   Compiling data and details on the Jefferies complex, not sure whether to post here or to my SeekingAlpha slot.  Got thoughts - hit me with them.

Sorry for the brief commentary, this guy is tired.  Lets see what happens tomorrow.  Reading that S&P futures are stronger overseas.

Later.