ECB’s Credit Easing

The ECB surprised the market by agreeing to purchase covered bonds. A more careful look, however, indicates that while they may help unfreeze segment of the credit market, there is no additional easing from this step.

What the Yield Curve is Telling the Fed?

The Fed should be worried. The recent aggressive steepening of the yield curve has been caused by a combination of both rising real yields and rising inflation expectations. The rate of increase of inflation will keep the Fed restrained, so there is nothing to keep yields from spiking higher with a subsequent steepening of the yield curve.

Gilts Yields Hit New Highs Even As BOE Expands Quantitative Easing

he Bank of England yesterday announced that they would increase Gilt purchases by a further 50 bln Sterling on top of the original 75bln Sterling. Despite this Gilt yields rose yesterday to levels that were higher than before the Bank of England’s (BOE’s) quantitative easing experiment started.

Moral Hazard, Time Inconsistency and Too Big to Fail

Walter Bagehot wrote that the role of a central bank in times of a liquidity crisis is to act as a “lender of last resort”, freely lending at a penalty rate against good collateral. This sage advice was ignored on several occasions by policy makers during the recent global financial crisis, dramatically worsening the outcome.

Chrysler Bankruptcy: Raising the Cost of Capital for US Issuers?

In the future, when bond investors consider buying senior debt, will they demand greater spreads for supplying capital since they can no longer be sure that their priority in the capital structure will be respected?