The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.

Bond Outlook March 12th

This crisis is not just about illiquidity but also about insolvency and the fear that borrowers, including banks themselves, will not repay. The Fed “boost” misses the point.

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.

The Fed is addressing the liquidity problem, but is the credit crisis only about liquidity? We (and many others) fear not. Solvency is also very much at stake, i.e. the balance sheets of many financial entities are vulnerable because of the write-down of assets. On the one hand banks cannot lend because they do not have the cash or the capital adequacy (and the Fed is addressing this issue), but on the other they are reluctant to lend to anyone if the risk of bankruptcy is in the air.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree