Long bonds getting massacred;FGIC ratings cut

In other interest rate news, long bonds are getting massacred in late trading. I'm showing the long bond futures off 1 23/32 at last count, a drop of 1.46%. That's good for an 11 basis point surge in yields to 4.65%. Short-term yields are up just a bp or two, meaning the yield curve is steepening dramatically.

Meanwhile, the stock market took a quick dip this afternoon after Moody's Investors Service came out and cut FGIC's ratings. The holding company's senior debt rating was lowered to Ba1 from Aa2, while the insurer financial strength rating of its operating subsidiaries was cut to A3 from Aaa. In announcing the move, Moody's said:

"These rating actions reflect Moody's assessment of FGIC's meaningfully weakened capitalization and business profile resulting, in part, from its exposures to the US residential mortgage market. These ratings remain on review for possible downgrade, reflecting continuing uncertainty about the firm's strategic and capital plans. An unfavorable outcome in those areas could lead to a lower financial strength rating most likely to the Baa level."

If you're not familiar with the ratings scale, this Moody's backgrounder might help you. Suffice it to say Aaa is better than Aa, which is better than A. Within those letter grades, there are numerical subgrades -- 1 is better than 2, which is better than 3.