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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (6513)	11/2/2002 4:06:49 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 306849

They've been buying short-term securities from banks with newly printed money for two years. They're trying to fight deflation. But this only lowers short-term rates. actually, long term rates have also come down tremendously--the 10yr Treasury is again below 4% thanks to the Fed's actions. what is different is that corporates have not followed the 10yr down. the Baa spread has widened to its widest levels since the early 80s. as a result, Baa rates are similar to the rates in the bubble atmosphere of mid-1999, even though government, agency, and mortgage rates have plunged to multi-generational lows. i don't think the Fed can lower the cost of capital for corporates simply by buying agency paper. instead, they would probably need to resort to directly buying corporate bonds and probably stocks as well. this requires a change of the Fed's mandate.