The name is, Bond. Covered Bond.

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Bullion prices tried to advance once again overnight but their progress was halted by slack demand and overhead resistance near $935. Thus far, the yellow metal has offered little more than a technical bounce after last week's drops and remains range-bound in the absence of external market-moving developments. Oil was once again showing sideways trading tendencies despite 'sour grapes' laments from Iran as to why Western nations can possess and proliferate nukes. Demand destruction appears to have finally caught up with black gold as it was revealed that Americans drove 10 billion fewer collective miles in the month of May.

A mildly rising US dollar (showing a gain of .20 @ 72.87 on the index) and a slight dip in oil (off 60 cents @$124.15 a barrel) then added to the unfavourable conditions and the metal sold off ahead of the New York opening. Some support was found near $920, in a replay of Monday's action. Much of it was related to financial woes over at Merrill Lynch whose $5.7 billion writedowns and $19 billion of losses over the past year have CEO John Thain pedaling harder than anyone in the latest Tour de France to shore up the firm's credit ratings, capital position, and shareholder confidence/patience.

New York spot gold trading opened with a $8.40 loss this morning quoted at $923.40 as participants await US consumer confidence figures and a speech by Treasury Undersecretary McCormick to provide some of what the market now lacks; direction. The metal needs to keep above the water line at $915 in order not to induce additional liquidations among position holders. The euro traded flat-to-lower at $1.571 but all is not well in Euroland as the contagion from the US housing market is showing all of the signs of a full replay over in another hitherto white-hot market: Spain. The implosion in that country's formerly soaring real estate has become a headache of first order of magnitude for the ECB's Mr. Trichet. Anyone for (more) covered bonds? Silver fell 21 cents to $17.28 while the noble metals presented a continuing negative picture as platinum fell $12 to $1743 and palladium was off $2 at $385 per ounce. In the background, thousands of unsold SUVs are choking dealer lots and one look at the emerging Kelley Blue Book values was enough to give a firm like Chrysler the final push - they are out of the auto leasing business. How is that for a reality check?

Presidential candidate Obama met with leaders from the world of money yesterday in Washington as he tackles the economy's challenging issues following his overseas 'foreign policy preview' tour. Though the timing of events was coincidental, the release of a projected deficit of $482 billion for 2009 by the Bush bean counters will have the Democratic contender up at night not only as he chooses monetary and fiscal managers but also as he selects what policies to put into motion (tax hikes, economic stimuli, etc.). Good thing we works out daily. Speaking of working out, here is an interesting twist on possibly ameliorating the mortgage situation that has gripped the US and is now spreading to Don Quixote land. Covered Bonds. The NY Times fills us in on a home debt concept that has been quite familiar in Europe for some time now...

"The financial establishment came together Monday in search of a new way for banks to come up with cash for home mortgages. Regulators, bankers and traders, led by Treasury Secretary Henry M. Paulson Jr., all pledged to do their best to get a "covered bond market" going in the United States.

"Covered" seems to be a synonym for collateralized, but it also has other meanings that may be appropriate in this effort to salvage the housing market. Think of covered wagons, which can be circled in times of crisis. With banks reluctant to lend their own money for mortgages, and the private securitization market quiescent if not dead, the cost of mortgage loans has been rising even as housing prices fall, making a bad situation worse. At best, a covered bond market would provide a cheaper source of financing for banks while reassuring investors that their money is safe.

Essentially investors would buy into a pool of mortgages that would be kept on the balance sheet of the bank that made the loans. These would be high-quality loans, and at the first sign of trouble in the underlying mortgages, those mortgages would be replaced in the mortgage pool. Thus, investors would be assured of repayment unless the underlying mortgages suffered major losses and the issuing bank failed. That might make investors burned by existing mortgage securities more willing to return to the market.

At best, a covered bond market would provide a cheaper source of financing for banks while reassuring investors that their money will be safe. It is highly unusual for the government to take such a major role in getting a market established, but Treasury officials said their action was needed to get more money into housing loans.

"We spoke to 50 or 60 market participants," a senior Treasury official said, speaking on condition of anonymity because he was not authorized to describe the process publicly. "It became clear that if we took the lead, we had a real chance to kick-start this market."

In Washington, Mr. Paulson said that "as we are all aware, the availability of affordable mortgage financing is essential to turning the corner on the current housing correction. He was joined by officials from the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

"We are at the early stages of what should be a promising path, where the nascent U.S. covered bond market can grow and provide a new source of mortgage financing," Mr. Paulson said. Four major banks Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — said they hoped to issue such bonds, and a larger group of investment banks and brokerage firms pledged to establish desks to trade the securities.

What remains to be seen is if there will be buyers. Mr. Paulson said the bonds appeared to be attractive to major banks, which would be able to pledge them to obtain loans from the Fed, and to some institutional investors. The F.D.I.C., which takes over failed banks, promised to respect the terms of the bonds, so that bondholders would be repaid from the value of the mortgages, even if other bondholders in the failed bank suffered major losses.

Covered bond markets exist in many European countries. In some of them, laws make the legal standing of such bonds clear, but Mr. Paulson and the other agencies concluded that no legislation was needed, and that policy statements by regulators would suffice. It is expected that Bank of America will be the first issuer. Bank of America has issued such bonds in Europe, and did one $2 billion American offering of covered bonds in June 2007, before antipathy to mortgage securities intensified.

The covered bond markets in some European countries have suffered to some extent from house price declines, but the markets have not closed down as the private-label securitization market has in this country. In the United States, those securities were backed by mortgages that were not guaranteed by either the federal government or by Fannie Mae and Freddie Mac, the two government-sponsored housing finance enterprises. Fannie and Freddie became the principal buyer of mortgages after the private securitization market closed down, but their own financial health has deteriorated, and provisions for their own bailout, if necessary, are pending. In normal times, an American covered bond market would bear little resemblance to traditional mortgage securitizations, in which the investors are paid from the interest and principal payments on underlying mortgages (and thus suffer all the risks involved in such loans).

Instead, a bank that issued such bonds could do so on any terms it and investors agreed on. The bond payments would come from general corporate funds, and would not have to be tied to terms of the mortgages. Under a set of "best practices" issued by the Treasury and rules issued by the F.D.I.C., the bonds could have maturities from one year to 30 years. The mortgages securing them would be of high quality, and for no more than 80 percent of the homes market value. That market value would be adjusted according to regional trends in home prices; if home prices declined, mortgages covering those homes might have to be replaced in the pool.