Lehman ‘swaps’ payday; another rate cut due; and more

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

A few notes from around the markets today:

--- Time to pay up: Here we go with the final chapter of who-owes-who for credit default swaps written on debt of bankrupt Lehman Bros. Holdings Inc. The payments owed on the swaps, a form of insurance policy, were settled at an auction on Oct. 10. Today is the due date for cash to be delivered from the sellers of insurance to the buyers.

Reuters’ Jane Baird is among those who think this will be no big deal, because -- at least in theory -– the hedge funds and other investors that are on the hook for an estimated $8 billion in payments have been raising this cash all along. That may well have been one catalyst for the stock market’s plunge since mid-September. See Baird’s take here.

--- Canadian rate cut? Bank of Canada policymakers meet today to decide what to do with their benchmark short-term interest rate, now 2.5%. Economist Carl Weinberg of High Frequency Economics predicts Canada will be the first of the major industrialized nations to start the next round of rate cuts, following the emergency reductions by eight of the big central banks two weeks ago. Given the threats to the global economy, ‘No one can doubt that the next move in rates -- all interest rates -- has to be downward,’ Weinberg wrote in a report Monday.

The U.S. Federal Reserve, which cut its key short-term rate to 1.5% from 2% two weeks ago, meets again on Oct. 28-29.

Another Canadian cut could further devalue the country’s currency in the short run. One $1 U.S. now buys $1.19 Canadian, up from $1.03 as recently as Sept. 26 and the most in nearly three years.

--- Daily dose of extreme bearishness: The credit markets are thawing and the stock market looks like it has reached at least a near-term bottom. But if you are convinced that things are going to get much, much worse, you’ll want to read the views of hedge fund manager Kyle Bass for validation.

Bass predicts ‘a financial winter the likes of which we have never seen’ since (you guessed it) the 1930s. ‘We are but one year into the mother of all credit crunches and two years into a housing decline,’ he wrote in a recent letter to clients. ‘Don’t be seduced by anyone telling you that all will be fine anytime soon.’

Read the full Bloomberg News story on Bass here.