RECOVERY OF MEDIUM- AND LONG-TERM CREDIT MARKETS COULD TAKE LONGER
The conditions in the capital markets have not changed appreciably in the past month.
The initial enthusiasm surrounding the election of President-elect Barack Obama has been tempered by a growing body of evidence that suggests we are in the early stages of a global recession.
First, the good news: The shortest end of the capital markets, the money markets, is beginning to show real evidence of improvement, which is probably a direct result of the U.S. government’s active support. Shortterm treasury rates – BMA (the Bond Market Association rate, otherwise known as the variable tax-exempt index rate) – and LIBOR are trading at risk premiums more consistent with history. This is the first step on the road to recovery of the credit markets. (LIBOR is the rate that banks lend amongst each other.)
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