Borrowing rates continued to accelerate down as Central Banks worldwide are following up the October 8th interest rate cut with a second round of cuts. Japan was the latest country to lower rates, dropping them 20 bps to 0.30%. Next week the European Union and United Kingdom are expected to follow suit with cuts. The effect of the monetary policy attacks and aggressive injection of liquidity is starting to show up in the form of lower borrowing rates in the markets. The Overnight Libor dropped another 33 bps and is now at 0.40%, below the Fed target of 0.50% and down 469 basis points from October 9th. The 3-month Libor dropped 20 bps to 3.02% and is down 173 basis points from October 9th. The TED Spread is one area that remains elevated as it is down 1 bps to 2.81%. The spread typically runs around 50 bps but has been above 100 since August of 2007. The high spread reflects the continued flight to quality in the markets. The 3-month Libor/OIS Spread slid down to 2.43% down 7 bps from yesterday and the lowest level since September 29th. The overnight index swaps fell another 10 bps to 0.60%. For commercial paper, the Fed set the rate it is willing to accept for 90-day unsecured commercial paper at 1.6%. The 90-day secured asset backed rate was set at 3.6%. Across the pond, Europe saw their Overnight Euribor move up 2 bps to 3.55%, while the 3-month Euribor fell 3 bps to 4.76%, its 16th consecutive drop. In Asia, the Japanese Tibor slid 4 bps in reaction to the rate cut and now stands at 0.94%. The 3-month Hibor dropped 5 bps to 3.34% and is now down 50 bps from its Monday level.

The September personal income and spending numbers were much in-line with expectations. The spending decline of 0.3% could be derived from yesterday's third quarter GDP release and is not truly new data. The income gain of 0.2% was a bit stronger than the consensus number of 0.1% but won't cause much reaction. It is a reminder, however, that income will rise even with falling employment. Raises are a key factor, but interest and dividend income can also increase, and government transfer payments offset some of the income lost by the newly unemployed... The core PCE deflator was up 0.2%, which is a bit surprising given that the September core CPI was up just 0.1% and the PCE tends to run a bit softer than CPI. Total PCE deflator was up 0.1%, as energy prices dipped. The inflation data won't cause much market concern, as inflationary pressures are ebbing and the numbers are likely to be lower in upcoming months. Total PCE deflator will go negative for October.

NY Times reports the Reserve Primary Fund, the giant money market fund whose customers have been waiting more than six weeks for their cash, announced late Thursday night that it would begin mailing checks to shareholders on Friday — for half their original investment. The announcement was the first indication of the losses the fund sustained when a wave of redemptions on Sept. 15 forced it to freeze withdrawals and liquidate its assets. The next day, the fund said it had "broken the buck," reporting a per-share value of less than a dollar. The announced per-share payment — 50 cents on the dollar — is more than some had expected, but well short of the dollar-per-share value that millions of money fund investors have long taken for granted. Indeed, it is considerably less than the price the fund reported on Sept. 16, which was 97 cents. But the Reserve Fund's president, Bruce Bent, said that he hoped the checks being mailed out would be the first installment, not the final payment.

Bloomberg.com reports the Depository Trust & Clearing, which operates a central registry for the $55 trillion credit-default swap market, may agree to disclose more data to counter criticism the derivatives amplified the financial crisis. New York-based DTCC has discussed with banks, brokers and others that own the company "whether or not there's any broader access to information we might provide,'' spokesman Stuart Goldstein said. The DTCC earlier this month began releasing some information on trades in the registry to clear "misconceptions'' about credit-default swaps following the bankruptcy of Lehman Brothers, among the market's largest dealers. Credit-default swap traders have come under increased scrutiny since Lehman collapsed last month and the U.S. government was forced to rescue American International Group (AIG), which faced bankruptcy after rating downgrades forced it to post more than $10 bln in collateral on credit swap trades that had plunged in value. Officials from U.S. Securities and Exchange Commission Chairman Christopher Cox to New York Insurance Superintendent Eric Dinallo have called for increased regulation of the swaps.

Initial claims for the week ended Oct. 25 were unchanged at 479,000. That was slightly worse than the consensus estimate of 475,000.  The steady state of claims, though, has diminished any newfound sense of negativity toward the claims