AAA banking and finance rates, 5 year and 10 year respectively, are rising again to 6.53 and 7.43% respectively which are inline with the tendency of corporate bond rates.
3-month T-bill is still discounted at 0.150% like last week. It may affect the secondary price by dragging it down from a discount of 0.01% last week now back to 0.09%. Apparently there is profit-taking behavior due to both speculation as well as news like Citibank bailout by US government. On the other hand, 6-month was sold at 0.49% this week, a huge drop from 0.84% last week. This is a sign that capital rushes to bond market for shelter except that the close-to-zero rate of 3-month T-bill becomes unattractive. Such drop also widens the TED spread to 171pts though this time it is initiated by the drop on T-bill but not LIBOR. While short-term credit risk is not the issue, the confidence on the market is apparently lost and losing.
The discrepencies between TIPS and Bonds are:
5-year = -0.42%;
10-year = 0.28%;
30-year = 0.42%
From the above data, the market has extended the deflation period to 5-year.
Certificates of Deposit rates have decreased. It reflects the expectation on the coming decrease of target rate as well as deflation.
Combining the above phenonmena, liquidity issue is still alright but confidence on the equity market has lost to debt market. Even for debt market, corporate bond market is doomed as worse news has not all emerged yet. Investors become more and more risk adverse, and the expectation on deflation has extended. Judging from the way many banks announced their Q3 results as well as the financial statements last year/Q3, financial institutions will continue to have problems/bad news. Other companies will also face similar problems. However, as the market has dropped tremendously before, investors may attempt to do bottom fishing. Yet, it can only trigger rebound, not refuel the market.