TAF
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")
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