Well, At Least I Understood One Thing Today

The trading in JEF actually at least made some sense. There was a story about a big potential exposure to Europe. Given what happened to MF global (going from 3.55 to 0.28 in just over a week), you could understand why investors were nervous. Jefferies is in the same size bracket as MF Global (small enough to fail) and similarly rated BBB/Baa2. Investors decided to sell first and ask questions and focus on details. The automatic halts kicked in due to price moves. That gave the company some time to respond. In the end, the company did a decent job, showing that i) they were running small net exposures ii) they weren’t relying on CDS when they calculated their net exposures, and iii) the numbers were in line with their market making activity – basically that this was largely inventory from market making and primary dealing activity in European bond markets – and not a big outright risk bet. I think they could have provided more details, but they did a decent job, and once the market had time to think about it, and digest the information, the stock responded well and was even briefly positive on the day.

Greece, is another story. No referendum is viewed as good. Any government or no government is viewed as positive. Greek bonds continued to sell off. The IIF continued to work on defining a haircut. I don’t think that what is good for Greece is good for the EU or vice-versa and this issue will be back. The issue seems to have been pushed off until the next installment, which I guess is good, but it all still seems very weird and tenuous at best.

The ECB rate cut finally came. More will likely come as they try to drive down cost of funds across the board. French 2 year notes actually responded well. That is a good sign for potential EFSF issues. Italian 2 year did pretty well, but Spanish 2 year seemed to benefit less than you would want to see. It is hard to tell what impact ECB buying had – but at least it seems like Draghi got the idea to co-ordinate a rate cut with ECB purchases.

I expect more optimistic messages and new lending programs to come out of the G-20 talks, but so does everyone, so who knows what it will do.