Keeping Up the Pace

US Treasury 10 year notes gained for a fourth day before President Obama meets Democratic and Republican Leaders this week in Congress for talks on how to avoid the “fiscal cliff”.

Today, the Federal Reserve will buy as much as $5.25 bln of Treasuries as part of its program to replace shorter maturity notes in its holdings with longer dated bonds to reduce longer term borrowing costs.

In Europe, Spanish yields soared to a six week high, as EU officials and IMF clashed about the time Greece will be given to reduce its debt levels. In Credit we had a volatile session today and traded weaker with news headlines dictating the market momentum. Corporate Credit Swaps, which are seen as a gauge of risk, also rose in the US.

Germany’s Finance Minister Schaeuble’s comments helped the market calm down a bit. Schaeuble commented on how the Euro Group should work on Greek mechanism and the aid program can be re-engineered to plug a financing gap of as much as 32.6 bln euro.

Despite Credit trading slightly weaker today, Credit has retained its performance as one of the best performing asset classes, as it has not been too distracted by the crisis we are facing.