Money Market Redux

I have not written about the money markets in some time as they have retreated from center stage and have seemingly left the main stage for the wings. As regular readers are aware, I speak often with a veteran money market trader for his sage observations on the state of his market.We just had a long conversation and I can report that he acknowledges the improvement engineered by the alphabet soup of Federal Reserve initiatives but he is cautious in his outlook as major challenges and stumbling blocks remain.

Three-month Libor has declined about 250 basis points in the last four weeks as a direct result of the Federal Reserves programs and as a result of the mountain of liquidity supplied by the central banks.

There is limited buying of selective names as order returns to the marketplace. The UK, Australia, New Zealand and Ireland have instituted unconditional guarantees of debt and that has attracted some investors. My trader friend did express the view that while there certainly has been buying on those names he is surprised that there has not been more of a groundswell in favor of that paper. He noted that it is odd that he is seeing resistance to unconditionally guaranteed paper from the very same folks who formerly would by asset backed commercial paper issued by some SIV with a prospectus filled with 60 pages of diagrams, charts and glossy photos.

He also notes that the Federal Reserve with its new facilities is removing paper from the street and liquidity is improving.

His main caveat was that 60 percent of players continue to have some degree of difficulty raising capital. The difficulty might be in the absolute level, the quantity or the maturity bucket in which they are forced to issue.

So, I think the bottom line is that improvement, substantial improvement, is in place but it will still be quite some time before normality returns.

Comments

[dr.doolittle:]

if ever.

2008 Nov 07 09:36 AM