Bond Market Close Recommended Tomorrow by Sifma on Sandy

Hurricane Sandy Strengthens as Storm Barrels Toward New Jersey
A wave crashes over the hull of a tugboat in New York Harbor during the arrival of Hurricane Sandy in New York. Photographer: Andrew Burton/Getty Images

The Securities Industry and Financial Markets Association recommend a full market close tomorrow in dollar-denominated fixed-income securities in the U.S. because of Hurricane Sandy.

The suggestion follows today’s noon New York time halt of trading of government securities, mortgage- and asset-backed debt, over-the-counter investment grade and high-yield corporate bonds, municipal bonds and secondary money market trading in bankers’ acceptances, commercial paper and Yankee and Euro certificates of deposit. Sifma also recommended full closures of U.S. government securities trading in Tokyo and London, the New York-based trade group said in a statement.

“There is a lot of risk with a weather event of this magnitude,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “When we get back after the close, the market will have to assess the aftermath of the hurricane.”

Hurricane Sandy, the Atlantic’s largest-ever tropical storm, will strike the East Coast today or early tomorrow with a life-threatening surge, emptying the streets of the nation’s largest cities and lashing a region of 60 million with gales, rain and even snow. The storm, 900 miles across, shut the federal government and state administrations from Virginia to Massachusetts. It halted travel, prevented U.S. stock markets from opening and stopped the presidential campaign. It may cause as much as $20 billion in economic damages, according to Eqecat Inc., a risk-management company in Oakland, California.

Light Trading

Treasury volume reported by ICAP Plc, the largest inter-dealer broker of U.S. government debt, fell to $81.79 billion, the lowest volume since December 2011, from $243.96 billion on Oct. 26 in New York. The volume was nearly of third of the yearly average of $242.5 billion a day in 2012.

The Treasury Department sold $25 billion in four-week bills at a high discount rate of 0.13 percent. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 5.23, the highest since January. The auction had originally been scheduled for tomorrow.

The Treasury also sold $32 billion of three-month bills at a rate of 0.125 percent and $28 billion of six-month securities at 0.160 percent. The U.S. isn’t scheduled to sell any more debt this week.

Fed Operations

The Federal Reserve sold $7.8 billion of Treasuries due from November 2015 through December 2015 today. The sales are part of the Fed’s program to replace short-term debt in its portfolio with longer-term Treasuries in an effort to keep borrowing costs low. The Fed canceled tomorrow’s open-market operations.

The Fed said in a separate statement that the debt sold today will settle Oct. 31 as opposed to the standard one-day settlement.

The central bank’s securities lending program ended at 11:45 a.m., 15 minutes early. Securities lending operations will not take place tomorrow.

In its daily securities lending program, the Fed offers Treasury securities held by its System Open Market Account, or SOMA, for loan to dealers against Treasury general collateral on an overnight basis. Dealers bid in a multiple-price auction held every day at noon New York time.

Futures Close

The Chicago-based CME Group, the world’s largest futures exchange, ended trading of contracts, including Treasury, Eurodollar and fed funds futures and options on both the trading floor as well as on Globex, its electronic platform, in accordance with the Treasury market, according to a statement.

The U.S. securities industry canceled equity trading on all markets today. The shutdown, announced by the Securities and Exchange Commission, may extend through tomorrow and followed an earlier decision by the New York Stock Exchange to close floor trading.

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