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Market Update

To anyone who was hoping for a speedy recovery in the US housing sector, your patience will be tested.  Fannie Mae announced yesterday that it will now require a minimum credit score for loans it buys on an individual basis, where it never before required a minimum.  In addition, they increased the amount of time required to re-establish that credit score after a foreclosure to 5 years, from the current 4.


These are the types of moves, while expected, will echo throughout the financial system.  All the lenders will eventually fall in line with Fannie, as it (along with Freddie Mac) are the main backers of residential mortgages in the USA.  When they tighten their standards, everyone tightens their standards.



The ADP Employment number surprised on the upside this morning.  This ADP number is still relatively new, but has been used to forecast the big jobs report coming on Friday.  As you've read above, the IMF has lowered its world growth forecast, particularly that of the US.  While this isn't really news, it doesn't come as a positive precursor to the jobs report.



The tone this morning is positive once again.  Treasuries and Canada bonds are lower, and the curve has flattened substantially in the last two days.  More importantly, T-Bills are now available across the curve, at more normalized levels (though still expensive).  The spread between 3 month bills and Bankers Acceptances has dropped to 156 bps.  This was over 200 last week (if you could measure it, as bills weren't offered).  Looking at the grand picture, if you had told me a year ago that BA's would be 150 over T-Bills I would have laughed, but here we are.  These elevated levels indicate that the market is still risk averse, but this aversion has been dissipating quickly this week.



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