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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Dr. Voodoo who wrote (40058)	9/18/2008 10:05:04 AM
From: elmatador	Respond to of 218160

Traders bet central banks will cut rates Yields on derivative contracts show investors believe the Fed and others will work together to calm markets KEVIN CARMICHAEL September 16, 2008 OTTAWA -- The U.S. government may have closed the door to bailouts for the struggling financial sector, but investors are betting that the world's central banks still are willing to give banks a lift. Traders wagered yesterday that the U.S. Federal Reserve Board and other major monetary authorities will cut borrowing costs by the end of the year at the latest, according to the yields they accepted on derivative contracts linked to benchmark borrowing rates. Part of the calculation investors are making is the possibility that central banks will act in unison to calm markets in the wake of yesterday's Lehman Brothers Holdings Inc.'s bankruptcy protection filing, which was the biggest in history. "There are higher odds of central banks cutting interest rates going forward," said Derek Holt, an economist at Bank of Nova Scotia in Toronto. The most dramatic example of the shift in sentiment around monetary policy related to the Fed, which most investors assumed was poised to raise borrowing costs in order to keep a lid on inflation. No longer. U.S. interest rate futures sold at yields yesterday that suggested a 60-per-cent probability that chairman Ben Bernanke will reduce the Fed's benchmark rate at a policy-setting meeting today, and a more than 80-per-cent chance that he will reduce borrowing costs before the end of the year, Mr. Holt said. The thinking in markets is that central banks such as the European Central Bank and the Bank of Canada would follow the Fed's lead, said Sébastien Lavoie, an analyst at Laurentian Bank Securities in Montreal and a former economist at Canada's central bank. Officials at major central banks and finance ministries, including in Canada, confirmed yesterday that they are talking to each other, but stopped short of saying whether they are planning a co-ordinated response to support the global financial system from the tremors emanating from Wall Street. The Fed late Sunday said it would accept a wider array of assets as collateral for emergency loans, and boosted its program for lending U.S. Treasuries to bond dealers by $25-billion (U.S.) to a total of $200-billion. China followed by cutting interest rates yesterday for the first time in six years. Central banks in Australia, Switzerland, Britain and Canada joined the ECB in injecting liquidity into their capital markets. "We have to be extraordinarily alert," ECB president Jean-Claude Trichet told reporters in Frankfurt. Major central banks co-operated to ease lending costs in the aftermath of the collapse of hedge fund Long Term Capital Management in 1998, a crisis that draws frequent comparisons to what's unfolding on Wall Street now. Even though central bankers such as Mr. Trichet and Bank of Canada Governor Mark Carney have appeared reluctant to lower interest rates in recent months, they likely would be persuaded to change their minds for the collective global good, analysts said. "One of the things that central banks often do is when there is a financial crisis, they cut interest rates to calm markets," said Nicholas Rowe, a monetary policy expert at Carleton University in Ottawa. "If there is agreement that some drastic move is needed where you forget about your own situation and hold hands and stand united, the Bank of Canada would likely be in on that."