Wednesday, December 24, 2008

A Continued Good Sign in Credit Markets

Swap spreads continue to "normalize". Don't understand and want to? Go here and/or here:

4 comments:

  1. Presumably the improvement in the swap spreads is due to the Fed's various credit facilities, which are essentially life support for the credit markets. What would be a measure of the credit markets' freeing up independent of the activities of the Fed?

    Put another way, what are potential exit strategies for the Fed?

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  2. When lending starts to take place to those with good credit, for good projects, without the intervention of the goverment. That is when I will say improvement has occurred. An earlier sign will be when the interest rate of long dated treasuries rise, credit spreads contract, and more importantly when bid/ask spreads contract.

    An exit strategy will be tough depending on:

    * how dependent everyone gets to this form of quasi-socialism
    * how bad the recession gets
    * how bad inflation gets

    No need to determine an exit strategy though when all the issues have really just begun.

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