Thursday, March 27, 2008
OK, so the TSLF result is in.....and it left your humble scribe scratching his head. Given the daily moans concerning the "worst banking crisis since the Depression" (has that phrase been trademarked yet?), one would have presumed that a facility that enabled banks to replace soiled MBS turds with shiny Treasuries would have generated quite a bit of interest.
In fact, the result was pretty damned tepid. Bid-to-cover was a paltry 1.15; by way of comparison, the bid-to-cover at today's 5 year Treasury auction, which most observers characterized as "mixed", was 1.98. The lowest bid-to-cover at any of the TAFs was 1.25, and the rest of them have been closer to 2, if not more.
So what gives? Are banks in dire straits and in need of money for nothing? (Sorry.) If so, why couldn't they be bothered to bid more aggressively in the TSLF? (Only 7 banks submitted bids.) And if they don't need the liquidity, then why the bloody hell is the Fed helping JPM buy Bear? And if (relatively speaking) no one was going to use this facility, why did its announcement prove to be such a fillip for risk assets?
Any fixed income geeks who are more familiar with the "plumbing" of these Fed facilities than Macro Man, please feel free to chime in and enlighten him as to what he's missing. 'Cause as things now stand, this TSFL mularkey is creating more questions than answers.