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Posted at 9:46am on Apr. 10, 2008 A Return to Stressed Conditions in the Credit Markets

Roller-Coaster

By blackhedd

Noted briefly this morning: the last several days have seen a return to stressed conditions in the bond and money markets, after a week or so of relative peace and quiet. The Treasury yield curve has bull-steepened again, indicating too much demand for short-dated Treasury debt.

The trigger for the disquiet was the Fed’s Term Auction Facility, which sold $50 billion in 28-day debt on April 7. The “stop-out” rate was unexpectedly high, which suggests that there are people out there who are short of liquidity.

Today, the New York Fed holds its third Term-Securities Lending Facility auction, which will be closely watched for signs that will confirm Monday’s results or not. And the market may react strongly in either direction.

With this report, I know I risk overemphasizing rapidly-shifting short-term behavior in the credit markets, that is ordinarily only of technical interest. But there is a larger theme: these markets underpin the real economy, and as long as they remain directionless and on hair-trigger alert, we can’t really get back to business as usual.

If anything is pushing us deeper into recession, this is it.

-Francis Cianfrocca ("blackhedd")

Posted in Bond market | Economy | federal reserve | liquidity crisis | money market | TAF | TSLF — Comments (5)/ Email this page » / Read More »

Posted at 8:36am on Apr. 9, 2008 Waiting for the Patient to Start Breathing Again

Liquidity Crisis and Credit Crisis

By blackhedd

As I told you yesterday, there are gathering signs that the liquidity crisis which has roiled money markets since early this year, and became a series of convulsions after the Bear Stearns collapse, is abating.

If conditions continue to stabilize and improve, then we can say that aggressive Federal Reserve intervention indeed solved a systemic liquidity problem that affected the financial system more seriously than similar problems in the past.

But if the defibrillator worked and the patient’s heart is beating again, we’re still waiting for him to start breathing. Dealing with the liquidity crisis doesn’t mean we’ve done anything to fix the credit crunch.

More…

Posted in credit crunch | Economy | federal reserve | liquidity crisis | risk management — Comments (25)/ Email this page » / Read More »