Large central bank interventions continued today, and while the moves alleviated stress in the money markets, three month rates remain elevated, a sign of continued lack of confidence. From Bloomberg:
The Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the 1920s.
The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer from $67 billion “to address the continued elevated pressures in U.S. dollar short-term funding markets.” The Bank of England, the Bank of Canada and the Swiss National Bank also participated…..
“There’s a complete lack of faith in the markets,” said Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London. “There’s a lot of cash hoarding and people losing trust in banks, so the central banks are acting to relieve that. This might not be the last time they have to act.”
Another story discussed the marker response:
The cost of borrowing in dollars overnight tumbled after central banks worldwide pumped $247 billion into money markets.
The three-month rate rose for a third day, to the highest since January, signaling that banks are still wary of more failures among financial institutions after Lehman Brothers Holding Inc. collapsed and the U.S. government took control of American International Group Inc.
“It has already had an effect in the interbank lending market,” said Richard McGuire, a senior fixed-income strategist in London at RBC Capital Markets. “It has improved or taken some of the pressure off liquidity concerns. There are still clear signs of strain.”