TSY and MBS markets have quietly bounced around a defensive trading range while stock markets sort out and process morning news regarding swine flu and GM's revised "Viability Plan". The DOW, NASDAQ, and S&P are all trading higher from Friday's close. TSYs are currently at their intraday yield highs (price lows) while MBS just kinda hang out and observe all the gyrations.

Change from 5pm "Going Out" marks....

FN30________________________________

FN 4.0 -------->>>> +0-05  to  100-07  from 100-02

FN 4.5 -------->>>> +0-03  to 101-30  from 101-27

FN 5.0 -------->>>> +0-01  to 103-01 from 103-00

FN 5.5 -------->>>> +0-01 to 103-25  from 103-24

FN 6.0 -------->>>> +0-00 to 104-17  from 104-17

GN30________________________________ 

GN 4.0 -------->>>> +0-04  to 100-12  from 100-08

GN 4.5 -------->>>> +0-03  to 102-06  from 102-03

GN 5.0 -------->>>> +0-02  to 103-21 from 103-19

GN 5.5 -------->>>> +0-00  to 104-00  from 104-00

GN 6.0 -------->>>> +0-01  to 104-12  from 104-11

Non Federal Reserve MBS buyers are still staying away from production MBS coupons (because of extension risk) while your rate sheet influential MBS coupons continue to rely on old faithful (Federal Reserve) for demand side support of originator supply offerings. Non public MBS buyers are craving cheaper dollar prices (which will come if TSYs sell) while the Fed keeps rate sheet influential MBS prices in a sluggishly stable range...which allows lenders to do the same with mortgage rates. Although yield curve (bond/debt) traders remain defensive of upcoming TSY suppy, they will gladly churn profits by day trading "flight to quality" induced bond price appreciations.

The FN 4.0 has been stable/sideways all morning...

This morning GM announced drastic cost cutting revisions to their previously submitted Viability Plan. Here is a summary of the announcement using excerpts from the GENERAL MOTORS PRESS RELEASE

"The Pontiac brand will be phased out by the end of 2010."

"GM anticipates reducing its U.S. dealer count from 6,246 in 2008 to 3,605 by the end of 2010, a reduction of 42 percent"

"GM will lower its breakeven point by cutting its structural costs faster and deeper than had previously been planned". They will do so by:

  • reducing "the total number of assembly, powertrain, and stamping plants in the U.S. from 47 in 2008 to 34 by the end of 2010, a reduction of 28 percent"
  • "U.S. hourly employment levels are projected to be reduced from about 61,000 in 2008 to 40,000 in 2010, a 34 percent reduction"..."This further planned reduction of an additional 7,000 to 8,000 employees from the February 17 Plan is primarily the result of the previously discussed operational efficiencies, nameplate reductions, and plant closings"
  • "GM also anticipates a further decline in salaried and executive employment as it continues to assess its structure and execute the Viability Plan"

"As a result of these and other actions, GMNA's structural costs are projected to decline 25 percent, from $30.8 billion in 2008 to $23.2 billion in 2010, a further decline of $1.8 billion by 2010 versus the February 17 Plan."

"Another key element of GM's restructuring will be taking the necessary actions to strengthen its balance sheet. GM today took an important step in improving its balance sheet by launching a bond exchange offer for approximately $27 billion of its unsecured public debt. If successful, the bond exchange would result in the conversion of a large majority of this debt to equity."

Another important part of improving the balance sheet will be the ongoing discussions with the UAW to modify the terms of the Voluntary Employee Benefit Association (VEBA), and with the U.S. Treasury regarding possible conversion of its debt to equity"

"In total, the U.S. Treasury debt conversion, VEBA modification and bond exchange could result in at least $44 billion in debt reduction."

Plain and Simple: GM is drastically CUTTING COSTS by getting rid of 2,641 dealers, closing 13 plants, saying goodbye to PONTIAC, and shedding 7,000-8,000 more jobs. GM hopes to reduce its debt load by modifying its health care package agreement with the United Auto Workers union and by restructuring its $27 billion public debt. If the plan works the US Government and UAW would own abou 90% of General Motors. If GM fails to restructure at least 90% of its $27 billion in unsecured public debt...CHAPTER 11 BANKRUPTCY IS IMMINENT.

Whether or not this revised "Viability Plan" works..... the labor market is looking like the housing market...UGH and YUCK

 

IN MORTGAGE RELATED NEWS....

Countrywide officially converted their website over to Bank of America today...

Rate sheets are slightly improved this AM...