9/23/2008 Summary

Still a relatively quiet day in fixed income in our shop, but we saw some pretty drastic moves overall in the market. I'll run down my particular areas, but want to share some observations about the hearings going on in Washington DC. The results of the hearings and the pending legislation has yet again thrown another pint of uncertainty into an already toxic brew on Wall Street. Is the answer more regulation from a governmental body who has demonstrably shown without a doubt that they do not understand much of what is going on around them. The SEC, in it's infinite "wisdom" (I use that term lightly) with it's short sale exclusions smacks of an almost Communistic market view. If the markets are not allowed to discover the "true" valuations of securities, then I propose that we go back to the pre 1970's model of pegging prices to an arbitrary value. Wipe out the modernness of the bond, equity markets.

This is not an appropriate forum for me to delve into political outlooks, but in the bond markets, politics does play a heavy role in the actions of the participants. The same rules apply to almost all government/soverign debt securities that are traded in the world today.

CDX Market Summary
IG5, quoted 160.42 x 161.42, wider by 10.06 basis points as of 3:21 CT.
IG HV5, quoted at 414.17 x 416.17, wider by 27.53 basis points
XO5's indicatively quoted wider by 25 basis points, although I do not have enough information to gather a finishing set of numbers yet.

Europe ITRAXX 5Y - 113x114, 8.88 basis points wider

The underlying CDS's today traded wider to Treasuries across the board, reflecting an air of uncertainty in the markets and the outlook for corporate earnings in the near term, which in turn sent many people hedging corporate debt exposure by buying CDS's on the underlying bonds. Again, it was not too bad in this market today, but the moves certainly are alarming enough.

Trade: Neutral on CDX right now.

Bond Swaps Market

Swaps	Spd	SChg
2yr	139.2	+15.6
5yr	112.4	+8.7
10yr	70.7	+3.0
30yr	41.9	+1.9

The 2Y swap continuing to really move wider in today's session, again underlying fears in the financial markets being the primary root cause. Swaps payers rumored to be fairly active in the shorter end of the market, but I am actively trying to corroborate that. I did not spend much time paying attention to this particular area of the market today.

Trade: Looking at the technicals, I am inclined at these levels to initiate a trade around the 139-140 level, targeting the +125 level within the next couple of days. 150 is an abnormal outlier, if we reach those levels, I am going to add on to the original trade up to +151 bps. Potentially as a hedge, I may gain exposure to the 5Y spread, up until the 120bps level.

Yield Curve Spreads:

Spreads		9/22/2008	9/23/2008	Change
2y-5y		91.8	92	0.2
2y-10y		170.5	173	2.5
2y-30y		229.5	232	2.5
5y-10y		78.7	81	2.3
5y-30y		137.7	140	2.3
10y-30y		59	59	0

The bigger moves in the curve spread universe was on the short end of the curve, which drastically changed the shape of the curve to be increasingly steeper. I will be publishing a recap document with all of these notes plus some additional charts with explanations later this evening.

Short End:

	3M	6M
9/23/2008	0.71	1.58
9/22/2008	1.26	1.63
Change	-0.55	-0.05