Market Update

The market backing off with the flight-to-quality taking a bit of a breather. Central banks have coordinated an injection of about $180B into the banking system (Bloomberg) and that seems to have calmed some nerves, for now. But the threat of broken banks hasn’t just gone away and funds will likely flow to treasuries, just not as panicked.

Once again, with each new fix the risk is it doesn’t work.  Not that anyone is paying attention to the mundane economic data being released, but initial claims came in on the high side of expectations at 455K vs an expected 440K mark and leading indicators off consensus levels as well.  The slumping economy’s impact on the credit crunch has not been addressed as much as the vice versa effect, the credit crunch’s effect on the economy.

Don’t discount the exacerbating effect on the current financial fiasco of an economy that is shedding jobs at an alarming pace.  So doom and gloom aside, agency MBS pricing is selling this morning as the central bank capital injections have temporarily soothed the flight to quality stampede.  FNMA 5.00% MBS are off 12 ticks (-12/32) while GNMA (FHA) 5.00% are off 7 ticks (-7/32).

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