Collateral changes and hedge funds : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Was there concern about what would happen with hedge funds near the end of October?


Friday October 22, 5:44 pm Eastern Time

U.S. asset-backed debt cheered by Fed window news

NEW YORK, Oct 22 (Reuters) - News that the Federal Reserve will expand the types of collateral it would accept for banks to borrow from its discount window tugged in asset-backed spreads to U.S. Treasuries and brought in dollar swap spreads on Friday.

``The announcement drove in spreads,'' said Tim Neumann, head of core fixed-income products at Chase Asset Management.

Another portfolio manager -- with an East Coast account -- said the announcement may benefit leveraged investors such as hedge funds but really may not be a major event.

``It is a backstop. It just adds confidence there will be additional liquidity at year-end,'' said the portfolio manager.

The Federal Reserve Bank of New York said late Thursday that the changes were related to discount window borrowing and were ``largely symbolic.''

The changes were not ``specific to Y2K,'' a New York Fed spokesman said. ``We have always had the discretion to re-evaluate collateral and to make changes in what types of collateral would be accepted.''

In a circular posted on the New York Fed's website, the Federal Reserve Bank of New York said certificates of deposit (rated investment grade), deposit notes (rated investment grade), commercial paper and other debt instruments by banks or affiliates of banks (rated investment grade), collateralized bond obligations (rated AAA), collateralized loan obligations (rated AAA), and commercial mortgage backed securities (rated AAA) were the additional types of assets now acceptable for discount window and payments system risk purposes.

Swap spreads narrowed about four basis points early Friday, traders said, citing the Fed's announcement.

The tighter swap spreads helped narrow spreads of products like mortgage-backed securities, asset-backed debt and corporate bonds, investors said Friday.

An ABS trader with a fund management firm said the Fed news added to the already-improved sentiment in the marketplace. ``Swap spreads were two to four in across the board. It augurs well for swap spreads going forward,'' the trader said.

In the meantime, participants said this session witnessed the pricing of a credit card-backed transaction from Fleet Boston Corp. (NYSE:FLT - news). The deal had fixed- and floating-rate classes, sources said.

The fixed-rate portion of the transaction totaled $295.5 million; a $252.75 million class on the deal, rated AAA, priced at 94 basis points over five-year Treasuries. Also, a $20.35 million class, rated single A, was priced at 127 basis points over five-year Treasuries.

According to investors, a BBB-rated class in the fixed-rate portion of the deal is expected to be priced at a later date.

Meanwhile, a floating rate piece on Fleet's debt offering totaled $591 million.

According to market sources, $489 million of AAA debt in this portion of the transaction was priced at LIBOR plus 22 basis points, while a $45 million floating-rate class, rated single-A, priced at one-month LIBOR plus 50 basis points.

Investors reported that Barclays Plc (quote from Yahoo! UK & Ireland: BARC.L) was preparing a credit card deal secured by a billion pound/sterling of receivables generated in the U.K.; a senior class A on the Barclays offering is said to total $900 million, while classes B and C are said to total $50 million each.

This Barclays card offering may be offered in euro - the single European currency, U.K. sterling and U.S. dollar denominations.

Within the secondary ABS market, there were no large bid lists of bonds being shown around, according to investors. One portfolio manager reported seeing some $3 million to $5 million auto and credit-card backed debt out for bid.

-- Trends (, October 24, 1999


" the problem with financial bubbles is that the participents don't realize they are in a bubble until it pops" Alan Greenspan, 1999.

-- Jim (, October 24, 1999.

Is the following statement from my bank related to this subject:

"..For internal bank record keeping purposes, all checking accounts will be classified as a Money Management account. Each MM account consists of two internal sub-accounts: A checking sub-account and a money market sub-account. During the course of each month, routine transfers may occur between the two sub-accounts. .... This change is for internal record keeping purposes only. ..."

-- Poor Bastard (no@no.non), October 26, 1999.

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