Even though the stock markets are over the moon as of this hour (the Nikkei up nearly 440 points, other Asian markets up over 3%, bank stocks up even more), the all-important question is the reaction in the credit markets. It is far less enthusiastic. One might charitably call it underwhelmed.
From John Jansen:
I just spoke with a trader in Tokyo who works for a rather substantial primary dealer. He said that benchmark agency spreads are about 20 basis points tighter than levels which prevailed at 300PM on Friday. Following the Wall Street Journal report spreads tightened about 10 basis points and have moved another 10 basis points in early trading there.
He described market conditions as “illiquid” and “worse than March”.
And this comment from reader and credit market analyst Marshall:
A major bankruptcy can often mark the climactic low of a bear market, but this comes after months of downward pressure, compelling valuation and signs of incipient recovery. And this bailout isn’t even a “one-off”. Youll probably get rolling bailouts to the GSEs on a quarter by quarter basis and so nobody can quantify the total cost to the taxpayer.
And will the foreign central banks, which have hitherto provided the biggest bailouts to the US economy, continue to play along? They might appreciate the fact that the government’s implicit guarantee for the GSEs is now explicit, but you’ve still got no pricing transparency, as you did in Sweden, so there can be no real confidence in the government bailout, because the government is actively perpetuating subterfuge and offering no segregation of the good assets vis a vis the bad assets. It’s another half-assed measure by Paulson, who still doesn’t want to hurt his friends on Wall Street too much.