Markets remain uncertain and the uncertainty has increased significantly since August last year. What started a simple crisis has turned malignant and spread beyond traditional banking. If banks collapsed, then the fear is not over yet. It has claimed its first non-banking victim and ultimately has changed the landscape of banking system.
What I observed is that money market rate spreads have pushed wider and steeper on account of well known credit fears and less known cash hoarding. Despite intervention by central banks, I still see a great preference for liquidity as global money market liquidity squeeze shows no sign of abating.
The term structure of money market interbank credit spreads has steepened massively and that reflects systemic credit fears as well as balance sheet liquidity ratios.
Public authorities have yet to let any other major players default, and the US even has nationalized Freddie, Fannie, AIG and facilitated other take-overs. In the
If the situation is as simple as it sounds and as market has endured several false dawns in the last five quarters, perceptions are not change that easily. To date, the system has continued to throw up new challenges and unexpected crisis and each time, the stated losses are rising. It is natural for pricing to be reset into a higher range in reflection of risk premium of current state.
Traders like me call it premium to be paid for ‘liquidity retention’. Liquidity injection by central banks has not been able to keep the 1M and 3M rates in the previous neighbourhood, which already gone up by at least 40-80 basis points already.
By now, a good treasurer should already err on the side of caution as opposed to more adventurous lenders.
1 comment:
bad times call for smart action. it would be foolish if you turn aggressive now. downside risk still very high and am not too sure if current efforts are enough to pull us through
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