I've got some seemingly unbelievable Good News to report. The credit market freeze is thawing big time. As James Bianco was pointing out one of the key things he was looking for was to see rate for Commercial paper come in and especially to see a reversal where the CP funding was from 1 to 4 days recently, and expand out where top tier issuers could fund with CP for 30 to 90 days.
and viola.... just like Magic.
1---- .highest-ranked 30-day commercial paper down 146 basis points to 1.93 percent today, the lowest level in four years,
That is a massive and positive credit market development.
The FED's third $540 Billion dollar initiative in serious global coordination is giving us rapidly healing global credit markets.
As I have pointed out on numerous occasions the FED has unlimited powers to sustain markets during what it deems times of emergency. The only limitation that contains the FED is if the USD collapses because of a global lack of willingness to old US Dollars.... luckily for us, the USD is doing fine since the rest of the world has done it's own fair share of financial pumping.
2---- The Fed yesterday invoked emergency authority to buy assets from money-market mutual
3----- look at Libor for overnight dollar loans as it declined to 1.12 percent, the lowest level since June 2004.
4---- the LIBOR - OIS rate has come all the way back down to 2.50%. It was 3.64% on Oct 10th!
5---- the so-called TED spread, was at 250 basis points today, down from 434 basis points a week ago. !!!!
this is vastly powerful healing..... for the credit markets.
6------ policy makers in Europe and Japan offered lenders unlimited dollar funding
7----- The ECB, Bank of Japan and Bank of England yesterday allotted $178 billion at a fixed rate of 2.11 percent in tandem with the Fed
think of that for a moment.....unlimited dollar funding; now that is our global central banks really starting to get serious.
We are very very close on the SPX to the 775 lows of 2002. Even though the SPX had it's lowest close since 2003, however it has already had two intraday lower lows this past week or so.
Thus we have the blood running in the streets, tremendous political uncertainty, just about no visibility, however we are now starting to see glimmers of light at the end of the credit market meltdown tunnel. The last and biggest obstacle is the all important Credit Default Swap Debacle and how that gets sorted out, as the CDS market needs to be calibrated, unwound and Marked to Market.
Let's see what type of smoke filled back room deal is implemented to provide a resolution for these CDS's.
Highly interesting times, but I'm becoming much more constructive on the credit markets and equities here.
and some of this high yield debt that is not "junk" but rather 5 or 6 ratings below AAA and is yielding 14% has to be a good buy for the judicious professional in here.
regards, John
(oh yes, Minsky is the man..... Stability is destabilizing.)
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Asian Money Market Rates May Decline as Libor, CP Yields Drop
By Candice Zachariahs
Oct. 23 (Bloomberg) -- Financing costs in Asia may extend declines after borrowing costs in London fell for an eighth day, the longest run of reductions since May, as a $540 billion Federal Reserve program resuscitated U.S. corporate borrowing.
The London interbank offered rate, or Libor, that banks charge each other for dollar loans dropped 29 basis points to 3.54 percent, the British Bankers' Association said. Australia's three-month bank bills were offered as low as 5.76 percent, indicating the rate may decline from yesterday's 5.85 percent.
``Libor rates dropped further on Wednesday, adding to signs that credit markets are on the mend,'' Citigroup Inc's Australian unit said today in a note to clients.
Credit markets froze after the collapse of Lehman Brothers Holdings Inc. on Sept. 15, prompting governments and policy makers worldwide to bail out banks and inject cash into money markets to revive lending. The Fed yesterday invoked emergency authority to buy assets from money-market mutual funds that are having difficulty meeting redemptions. The initiative is the third government effort to help the funds, which provide a key source of financing for banks and companies.
The Fed announcement helped send quoted yields on the highest-ranked 30-day commercial paper down 146 basis points to 1.93 percent today, the lowest level in four years, according to data compiled by Bloomberg. Commercial paper is used by companies to cover day-to-day expenses such as payroll and rent.
Australian banks reduced deposits at the central bank to A$6.2 billion ($4.2 billion) yesterday, down A$1.6 billion from Oct. 21, the Reserve Bank of Australia said today on its Web site. The RBA estimates the country's money markets will have a A$1.4 billion deficit today as it prepares to pump cash into the system.
ANZ Cash Stocks
Banks have been hoarding cash as financial institutions including American International Group Inc. and Fortis Group had to seek government help. Australia & New Zealand Banking Group Ltd., Australia's third-biggest bank, increased its cash stockpile by A$19.2 billion ($13 billion) this month so it can cover any funding shortfalls, according to the company's full- year earnings report today.
ANZ's net income fell 21 percent to A$3.3 billion in the 12 months ended Sept. 30, the first annual decline in 11 years, as provisions for delinquent loans almost quadrupled.
Libor
The Libor for overnight dollar loans slid to 1.12 percent, the lowest level since June 2004. Three-month Australian dollar Libor fell 19 basis points to 6.825 percent, declining to less than 7 percent for only the second time in the past year. The rate for three-month loans in yen slipped 1 basis point to 1.025 percent, declining for a fifth day. The yen rate stood at 0.888 percent before Lehman collapsed.
Interbank rates have retreated after policy makers in Europe and Japan offered lenders unlimited dollar funding. The European Central Bank yesterday provided euro-region banks with as much U.S. currency as required, allotting $68 billion of seven-day cash at a fixed rate of 2.03 percent. It supplied a further $3.85 billion, also for seven days, via a currency swap against euros.
The ECB, Bank of Japan and Bank of England yesterday allotted $178 billion at a fixed rate of 2.11 percent in tandem with the Fed.
Libor is set by a panel of banks in a daily survey by the British Bankers' Association at about noon in London. Members provide estimates on how much it would cost to borrow in 10 currencies for terms from a day to a year. About $360 trillion of financial products worldwide, from mortgages to company loans and derivatives, is tied to the Libor.
`Positive Impact'
``Financial markets will stabilize overall because the coordinated measures of the past weeks will show a positive impact,'' ECB council member Ewald Nowotny said in an interview with Austria's Falter magazine, published yesterday. ``There can still be setbacks, but I believe that the turning point has been reached.''
While money-market rates have declined, the three-month Libor is still 204 basis points more than the Fed's target rate for overnight loans of 1.5 percent, up from 120 basis points about a month ago. At the start of the year, the spread was 43 basis points.
Yesterday's decline in the overnight rate left it 38 basis points below the Fed's target as speculation mounted policy makers will enact a half-point cut on Oct. 29. It has been below the Fed's main rate on three occasions since Sept. 14, 2007.
The difference between what banks and the U.S. Treasury pay to borrow for three months, the so-called TED spread, was at 250 basis points today, down from 434 basis points a week ago.
The Libor-OIS spread, which measures the difference between the three-month dollar rate and the overnight indexed swap rate, narrowed to 250 basis points for the first time since Sept. 30. It was at 364 basis points on Oct. 10. A basis point is 0.01 percentage point.
Overnight indexed swaps are over-the-counter traded derivatives in which one party agrees to pay a fixed rate in exchange for the average of a floating central-bank rate during the life of the swap. For dollar swaps, the floating rate is the daily effective federal funds rate.
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
Last Updated: October 22, 2008 18:50 EDT |
