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2008-11-29 Home Front Economy

US treasury market reaches breaking point

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Posted by tipper 2008-11-29 04:30|| || Front Page|| [3 views ] Top

#1 This is very bad. An analogy would be the effect on an automaker if people were paying full value for cars at auto dealers, but then the dealers refused to deliver the car.

Assuming, of course, there were only 17 auto dealers in the whole country.

Even if the buyers wanted a car that the automaker wanted to sell, they wouldn't dare buy, on the chance that the dealer would not deliver.

Posted by Anonymoose 2008-11-29 09:48|| 2008-11-29 09:48|| Front Page Top

#2 I call bs. If there were really a problem in the repo market, it would affect Fed Funds almost immediately and offshore interbank lending as well. I'm not hearing about interbank lending issues these days, more banks unwilling to lend to credit worthy commercial and retail customers. lotp?

Posted by Nimble Spemble 2008-11-29 10:25|| 2008-11-29 10:25|| Front Page Top

#3 Treasury Traders Paid to Borrow as Fed Examines Repos (Bloomberg)

Posted by tipper 2008-11-29 10:51|| 2008-11-29 10:51|| Front Page Top

#4 Thanks tipper. A much better article without the hysteria.

Posted by Nimble Spemble 2008-11-29 10:58|| 2008-11-29 10:58|| Front Page Top

#5 Nimble, before you hoist the BS flag, consider that Treasuries have been oversold as a "flight to quality" ever since things turned really ugly in September. The index of them being oversold is the 30-day note and it's rate, now less than one-tenth of a percent. In normal times, it would probably be over four-tenths of a percent.

Another indicator is the Overnight LIBOR index. LIBOR is the Brit index on money loaned between banks. It works opposite to Treasuries, so as it rises, less money is being loaned. To have a free flow of interbank money, LIBOR needs to be down at two-tenths or below, and after the recent Central Bank interventions over there, it did drop to that level, but is now back up to over eight tenths.

The primary objective of all the trillions in central bank relief in all nations has been to unfreeze the credit markets, and by these indicators, it's easy to see that all such efforts to date have had only temporary results, and the markets are currently frozen again.

It's all a psychological game, and will continue so until the underlying problems of quality in borrowers are solved. Making those changes requires severe de-leveraging, and repeal of all of the ease-credit rules passed by the central governments. Some de-leveraging is happening as a by-product of equity loss, but not one single credit rule has been tightened, because all the liberal political philosophy of the last twenty five years has advocated loose credit, and unless and until that base philosophy changed back to status quo ante, there will be no solution, only feel-good temporary rises in equity value.

And, Treasuries will continue to be oversold.

Posted by Rivrdog">Rivrdog 2008-11-29 12:27|| http://rivrdog.typepad.com]">[http://rivrdog.typepad.com] 2008-11-29 12:27|| Front Page Top

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