Finally, A Meaningful Improvement in the Money Markets

Even though much has been made of itty bitty falls in Libor from very elevated levels, leaving Libor still at very elevated levels, we have a sign that the massive efforts of commercial banks to lubricate the money markets is finally having an effect. 30 day commercial paper rates eased meaningfully, although they still remain high.

Note that 30 to 90 day CP are the most popular tenors; we need to see more improvement at the 30 day and longer maturities before we declare victory, but this is a move in the right direction.

From Bloomberg:

Rates for one-month commercial paper fell to a three-week low after central banks joined forces to pump cash into money markets and government backed loans.

Average yields offered on the highest-rated commercial paper placed by dealers and due in 30 days fell 0.48 percentage point today to 3.45 percent, according to data compiled by Bloomberg. Rates fell 0.83 percentage point this week to the lowest since Sept. 26 from a nine-month high of 4.28 percent.

“The infusion of capital by the government into the banking system should improve balance sheet health greatly and gradually, make unsecured lenders more comfortable,” Barclays Plc analysts Piyush Goyal and Kurush Mistry said yesterday in a report.

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  1. Anonymous

    So the banking “industry” has now received so much money that it’s considering lending a little bit of it back to the real economy. How jolly generous of them!

  2. FairEconomist

    To me the most promising change is that the 30-90 day commercial paper volumes are, very roughly, normal for the past 2 days. So after a month, we’re finally seeing working capital in the market. 90 day paper is crossing the end-of-year too, so that’s also a vote of confidence.

    The bad news is that the A2/P2 spread remains at an unbelievable 449 basis points, 3 times the level of the 73-75 recession. So we have a working market again – and it’s predicting a depression. We can hope the spread is being driven by subsidies for AA credit via it being usable for Fed collateral, but even so it looks very bad.


    Who cares that rates are being “shoved, pushed, manipulated” lower?

    Easy money created the credit crisis and yet we turn to it for a solution.

    Just what you want. More credit extended going into a global “economic” meltdown. Nice, more taxpayer money at risk on the next leg down.

    Let’s celebrate a return to the conditions that created the credit crisis.

    Hip hip…hooray….

    hip hip…hooray….

    cmon, louder.

    hip hip HOORAY..

    Much better.

    Look at the balance sheet of the U.S government. Deficits are exploding. Some people seem hell bent to see the consumer and corporation damage the balance sheet in similar fashion.

    I see why we are all happy. Sorry it took so long to get “it”.

  4. Anonymous

    There is a big difference between credit markets pulling back by say 20-40% and a total systemic collapse.

    The former is brutally painful; the latter, possibly fatal for the international economic system.

    So yes, it’s root, root root for SOME credit availability.

    I still can’t believe the shipping/letter of credit situation. That also has to get back to normal pronto. Food rotting on the docks is not what I call a ‘situation under control.’

  5. Anonymous

    Finally? Finally you decide the truth is not worth repeating it. Markets are imploding, Pancho. Just read a bit more.

  6. Anonymous

    I just hope at the end of this all the obsolete industries disappear.

    It seems more likely that we will keep them going at the expense of new and better ones though.

    Thanks a bunch Bernake.


    anon (6:06)–

    I do want credit availability as well, but at an interest rate that prices in an realistic level of default risk.

    Remember, we are facing a global economic slowdown, led by a U.S consumer seemingly shifting towards less consumption, less debt accumulation and greater personal savings.

    Unfortunately, IMHO, rebuilding the consumer balance sheet might mean less corporate cash flow, unless government spending can offset any pullback in private consumption.

    So I ask this question; where should corporate debt get priced with a global slowdown ahead of us?

    And, How do commercial banks balance the fine line between extending loans to help unfreeze the credit markets and limiting loan losses if the economy deteriorates further.

  8. printfaster


    It is not the commercial banks that are unsticking and buying CP, it is the Fed. Quoting also from Bloomberg:
    The Fed said last week it will create a special fund to buy commercial paper, seeking to unblock the financing that drives everyday commerce for American

    Even commercial paper is being nationalized. Perhaps the Fed will recognize sheets of toilet paper as foreign currency and buy them to inject more funds into the economy. We should be so lucky. All of the money is being sent to incompetant bank executives so they can hold on to their precious overpaid jobs.

  9. printfaster

    Phil, I don’t even care about pay packages. I want them unpaid. Fired. Out. The banks are obsolete and do not provide the purpose for which they have been chartered, and that is to finance business activity. The whole financing industry for itself is a sham. It is finance for finance sake. It is financing billion dollar bonuses last year for Gunnie Sacks, which is what they executives should be wearing.

    When I think of how much money has gone into lower Manhattan, it makes one ill. That money needs to go back to main street to create industry which creates its own demand. Not the demand for financial products. Yech.

  10. Anonymous

    “Even commercial paper is being nationalized” the reality of it all.
    the CP market is dead, just like the mortgage market without the gov’t shelling out dollars it would not exist. If the CP market ever comes back I am sure we are talking years.

  11. Anonymous

    I can’t help but feel we could be in for a very long haul. After all, what got the markets into this mess was the provision of finance backed by funders who just couldn’t say no to borrowers with improperly understood risks for short term gain. And what are central gov’ts providing to ease the way out… ?

  12. Anonymous

    Hey, morons:
    You think a debt crisis is solved by…more debt??? You and your children will be pissing on Keynes grave.

  13. Wendy


    One reason that I have loved your blog so much is that intelligent people were able to disagree with respect. Those who are experts have been respectful to others who are asking questions and so on. I hope that you will act as a moderator. Offering an opinion, even a very different one is always welcome. Calling others a “moron” and acts such as this are not constructive and they rob your blog of class.

    Thank you.

  14. Anonymous

    Dollar continues to climb! That is the most important indicator going forward. It says that cash is king or deflation is king however one wants to make the statement. While the gov’t throws debt at the debt mkts debt service becomes more and more dificult. Got Cash?

  15. doc holiday

    OT; this was nice, from a post in another part of The Universe, by someone named, Dr. Michael Yanakiev

    > Richard Dooling wrote in the New York Times: "Somehow the genius quants – the best and brightest geeks Wall Street firms could buy – fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and – poof! – created $62 trillion in imaginary wealth."

    Those algorithms were based on risk assessments that were seriously flawed, based only on the risk to the market at that moment, rather on cold, hard empirical data about a person's ability to pay and what would happen if a lot, rather than a few of them, stopped. As George Dyson (son of the quantum physicist Freeman) wrote in Edge last week: "The problem starts, as the current crisis demonstrates, when unregulated replication is applied to money itself. Highly complex computer-generated financial instruments (known as derivatives) are being produced, not from natural factors of production or other goods, but purely from other financial instruments." What is also becoming clear is that the financial markets are far more automated than ever before. There is a growing sense that much of this was made by machines, with the quants feeding the beast ever more intricate lines of code. Dooling has a growing conviction that we are now at the mercy of a financial system based on "arrangements so complex only machines can make". It seems we are at the mercy of the machine.

    Not a Great Depression, a Great Rebalancing

  16. Arete

    there was a concerted effort by Chase NY to lend 1month cash (unsecured) in the market friday. Citi bank joined in after the market started moving.
    To give you an idea of the magnitude of this, they started lending at approx. 5% (way above 1month usd libor note), and ended up lending at 3% (could have been lower after I left. The amounts involved were not trivial and it explains alot of the movement in the eurodollar strip, the swap spreads and probably even the long end of the usd irs curve. I would guess Chase got a little persuasion to start lending out the cash, it wasn’t coming from trader level in any case!
    So what…. well USD libors should collapse monday. So what again… as one person said yesterday, “the panic to get out of panic trades has started”…. and there are ALOT of panic trades out there that I think will all have to exit a very small door next week as sentiment comes back from the brink….

  17. FairEconomist

    there was a concerted effort by Chase NY to lend 1month cash (unsecured) in the market friday. Citi bank joined in after the market started moving.

    Dimon is being the Fed’s go-to guy *AGAIN*?!

    How long could Chase keep this up?

  18. piglet

    How is a “high” of 4.28% choking the economy? You seriously think the survival of the economy lies in the difference between 4.28% and 3.45% yield on commercial paper? Utterly ridiculous.

  19. piglet

    wendy, please don’t get worked up about somebody’s poor choice of words. It doesn’t hurt. Just ignore it. Policing these comments and introducing censorship would do much more damage do the debate. I have seen this on other blogs. Please consider this before you cry for the “moderator”. And yes this person had something legitimate to say even if you may not like the way they expressed themselves.

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