Bleak outlook in bonds but KfW, Spain reap flight to quality harvest
If the bond market was gloomy last week, this week it was in anguish. US agency spreads went off the rails as the market digested a report from Lehman Brothers that Freddie Mac and Fannie Mae could need far more capital than had been anticipated. At the same time, banks came under pressure on concerns about the US economy.
Dollar swap spreads skidded out by 20bp on Tuesday, while Treasuries rallied by more than 10bp.
One seasoned banker covering frequent borrowers said it felt like the market was standing on the edge of a cliff.
Yet in this lurid landscape KfW was able to price a $3bn five year
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