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On the Brink: Inside the Race to Stop the Collapse of the Global Financial SystemThe central bank announced a temporary change to allow banks to borrow for up to 30 days, versus its normal one-day term, until the Fed determined that market liquidity had improved. Investors ran away from securities that made them nervousБЂ”driving the current yield of 30-day ABCP up to 6 percent (from 5.28 percent in mid-July)БЂ”and began to accumulate Treasury bonds and notes, long the safest securities on the planet. This classic flight-to-quality nearly resulted in a failed auction of four-week bills on August 21, when massive demand for government paper so muddied the price discovery process that, ironically, some dealers pulled back from bidding to avoid potential losses. As a result, there were barely enough bids to cover the auction, so yields shot up despite the strong real demand. Karthik Ramanathan, head of TreasuryБЂ™s Office of Debt Management, had to reassure global investors that the problems stemmed from too much demand, not too little. In the end, the Treasury auctioned off $32 billion in four-week bills at a discount rate of 4.75 percent, nearly 2 percentage points higher than the prior dayБЂ™s closing yield ...» |
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