Bond Outlook [by bridport & cie, March 12th 2008]
The USD 200 billion+ “boost” by the Fed is very clever (maybe too clever by half), as it addresses the illiquidity problem of mortgage-backed securities by allowing the use of AAA bonds as collateral for Treasuries. This gives the banks the means to borrow from each other and meet the needs of their clients. Equity investors clearly “bought” this line on Tuesday, although there is something inevitable about any move by the Fed to “inject money” causing a short-term stock-market rebound, exaggerated more than ever this time by unwinding of short positions. |
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The Fed is addressing the liquidity problem, but is the credit crisis only about liquidity? We (and many others) fear not. |
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