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Strategies & Market Trends : John Pitera's Market Laboratory
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To: Hawkmoon who wrote (8213)9/5/2007 1:02:00 PM
From: John Pitera  Read Replies (1) of 33421
 
I think LIBOR is rising because the asset based commercial paper market has a lot of these CDO and CLO's that have been used as colateral and it's very hard to say what they are worth. It would appear that you've got questions of who gets paid back what percent and on what type of seniority of obligation basis.

Couple that with the uncertain counterparty risk and the concerns of not knowing where the weak links are in the Payment process. These markets where developed in a period of lower volatility in interest rates and lower volatility in currency cross rates.

It's a very emphemeral living breathing system which has taken on a life of it's own. I really expect to be hearing more about counterparty uncertainties and risks as we move forward.

One thing that will scare the markets tremendously is if and when the FED uses Discount and FED funds rate reductions but it does not lower borrowing rates for the less solvent and credit worthy class of borrowers.
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