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Euro Commercial Paper Rates Surge As Debt Roll Troubles Become Acute
The chart below demonstrates that while concerns about Libor are gaining steam, a far more dangerous situation has developed in the Euro Commercial Paper (top tier) market, where rates have surged far more in the past week than even compared to Euro Libor or Euribor. As those who were alive in the days after Lehman will recall, the freezing up of the Commercial Paper market was one of the primary reasons for the Fed's creation of the Commercial Paper emergency liquidity funding facility (CPFF). If the CP market once again dies, or, as it is better known in polite circles, "locks up" it will once again set off the avalanche of locked up credit markets initially for financial and other IG companies, and shortly thereafter spread to all other segments of the market. Should the CP rates continue rising without moderation, look for European credit markets to break soon enough.
Furthermore, as the US dealer commercial paper 30 Day rates show, also on a steady rise, it is likely that none other than money markets are now shunning financial Commercial Paper, precisely in the same suicide spiral that led to a run on the money market on September 19, 2008, once CPs locked up, and eventually led to a run on MMs themselves. The paper we posted yesterday about a massive run on the tri-party repo market may prove oddly prophetic.
h/t credit trader
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see, the main problem is there is not enough money to go around. we should print some like the brave americans did.
Help me understand please; what will the ECB be forced to do to address this?
Seen as they carn't print US dollars they've got slight problem as one says in polite circles.
No probs, Ben's got their backs with swaps. BEN will print, has been printing, continues to print...
Go long ink.
And Crane & Compay :)
(Crane makes the paper for the USD)
I'm hoping one of the swap-literate ZH'ers can set me straight here. When the EU central banks swap euros for US dollars, don't those swaps have to be paid back in USD? I'm trying to see how this is a "solution" in any real sense.
I have an idea that this crisis has progressed to the point where the notion of "paying back" has become a mere paper formality. How else to view Europe's bailing out insolvent borrowers by lending them morey? How else to view mortgage modifications, etc?
It looks like you understand swaps better than you think. However, I doubt anyone really expects them to be 'unwound.' At this point they're like bailouts.
Mmmm...seems like maybe someone should have explained that to the US taxpayer before BB loaned our printing press to the Euroland central banks. Sure looks like QE to Infinity...and beyond.
So, that would drive the Dollar down and the Euro up? (Printing Dollars = Dollar down?)
Yes, if the market knew what the Fed was actually doing, that would probably occur. Audit, anyone? How the hell can we have an institution in charge of the value of the currency but isn't audited?
Maybe they can get some help from North Korea -- I hear that they've got the US$100 bill down to a science.
lower ST rates to zero, and then asset purchases and QE.
They will be forced to work a 38-hour week, take 6 weeks of paid vacation, and retire at age 50.
Then, they will be forced to get an extra paycheck as "Christmas money" and a bonus payment for having a newborn.
Lastly, they will be forced to blame the Americans and Asians for exposing the Euros and their ECB as complete and utter pansies.
I expect them to burn down the workplace before they accept terms likes the ones you describe.
Singing "The roof, the roof, the roof is on fire. We don't need no water let the mother f***** burn"
Black Gold ain't fueling that fire thats for sure. What a f*cking joke.
Yeah, and blame America, and in particular George Bush for the fires in the buildings they just torched and demand that we rebuild their infrastructure for them.
Sound familiar? Duh.
And BTW.
Remember, crises are not matters of bankruptcy, for insolvency in the form of illiquidity knocks prior thereto. Debts simply cannot be rolled.
The Legacy of All Financial Crises.
It will not be a declared demise, it will be a reaction to an inability to refinance, the failure to amass the King Cash.
Why in the world do everyone but the Bond Geeks not recognize this Truth? Whilst our equity Brethren wail, gnash teeth and wring hands, we simply pay attention to short term credit market conditions. That's were it all happens. Other markets may well be Barometers of Fear and Greed, but CP don't get rolled into Equity at times such as these.
Yes, ECB will lower rates. This will undermine the EUR even more.
Get ready for Liquidigeddon II, Electric Boogaloo!
Sorry to break in . Heads up on gulf coast. Seafloor is having SERIOUS problems. http://monkeyfister.blogspot.com has video taped and screen captured the blow up sunday nite. Gotten worse since then .Top kill may not be possible, its gone beyond that. If you live near the gulfcoast, save yourself, get out!
We now return to regular programming
Thanks MH for the update. This is terribly distressing.
Howard, i am so glad i was able to give something back and i posted my first live link. Connsider i still dont know what rolfmao means, am assuming its rolling on floor.
This just to show you how cp ignorant i am. Learning steadily thanks to you folks.
Rolling On The Floor Laughing My Ass Off = ROTFLMAO
A condition engendered by reading the minutes of the Fed.
sushi, thank you much. Sounds like fun until the earth shakes too
Great link, MH! I did some clicking around on the site and found a local news station's live camera for a different view. Is it the same leak?
http://www.wkrg.com/gulf_oil_spill/spill_cam/
And you can check the time ticking away in Central time so it's truly live! This is so horrible - it's just so much oil.
BP lied in the beginning. They lied after being forced to admit a higher number. And they still won't let press near the shore. Here are some articles that have some info you might have not seen:
http://www.globalresearch.ca/index.php?context=va&aid=19317
http://www.globalresearch.ca/index.php?context=va&aid=19325
http://www.globalresearch.ca/index.php?context=va&aid=19287
Air Quality Index important to watch too. Don't know how reliable the numbers are...
http://www.wkrg.com/gulf_oil_spill/air_quality/
And that advisory was May 1st!!
Thank you WaterWings. Its a little scary understanding the possible outcomes. Certainly many people will be affected as this goes on . I expect at some point to see refugees come to the Northwest. It appears the safest place. Until recently we never had tornadoes, now sometimes we do.
Another Interwebizm you may need is GTFO: Get The Fuck Out. Impolite but to the point.
Oh and TPTB is The Powers That Be. This is a real timesaving acronym.
Thank you for caring (that goes for everyone here).
The real carnage is beginning...this is a one way ticket to hell.
They'll probably have to fire their rate cut bullet and announce another round of bailout minutiae to calm the waters. After that round and the subsequent market ramp the real pain starts.
test
Or they could just ditch Greece for a quickie...
they are far too stupid for that. kicking greece is the only thing that can save Euro, therefore Greece will not get kicked. bureaucrat logic.
nah, that's too rational and has too much near term pain attached, so no way they do that.
cnbc reporting timmy to reccomend a bank stress test..sureal just turned into pathetic
I'm sure he would like to do a stress test on UBS, if not just to get access to the account info on any members of the GOP. His party is desperate need of leverage.
Sounds CREEP-y.
made mistake of switching on CNBC, just in time to hear more fatuous nonsense from the US 'commentators'. underlying mantra is clearly 'lets all blame those damn Europeans for the inevitable shortfall in US GDP thats coming'; particularly since the US would have been fine if those blasted Greeks hadn't evaded taxes all these years, wouldn't it ?
do me a favour. yes, the European experiment is the single biggest mess up of the new millennium (or is shaping up to be). so what ? tell us something we didn't know already since years. sell off is just seizing on the European mess to justify withdrawing capital back home and into Treasuries. what a good job there's such supply coming up...
smells like there's a pathogen loose in the system.....
"cnbc reporting timmy to reccomend a bank stress test..sureal just turned into pathetic"
His hypocrisy and gall defy description.
1100 banks in the eurozone. yeah that's going to work.
Europeans won't fall for it.
Let's hope the CP market dies. Fundamental systemic change MUST occur.
Fingers crossed...
Liquidity crisis 2.0
Might make Sept. 2008 look tame in comparison.
It will. And this time it gets to play out. Give it some time...Ben will come up with some plan today to screw the US Taxpayer further due to the systemic risk involved. But his little gun won't be able to stop a global depression.
Nope, he will just make it a hyperinflationary depression if he can.
At the rate of change for the past 3 years the Fed will need to add another $5-10 trillion to its balance sheet this time.
"Implicit" guarantees are inadequate, so banks will be forced to liquidate and sell their assets to the Fed on a much larger absolute scale....this is going on in Europe presently,
with the Fed providing finance. The Fed is lending unsecured to the ECB-a bank that probably disappear in the next two years...I guess the IMF will have to assume the debts...that means the U.S. taxpayer, as usual. But at least our bonuses will survive another year or two...how long after that we will be able to retain our heads becomes the question.
...anyway...
I think most of us now view the Fed as a Junk Fund of Last Resort whose assets will never find an arm's length buyer because by definition none exists.
The Fed has exceeded even the fondest hopes of the plutocratic elite as a mechanism for extracting wealth and transferring it into the hands of that controlling elite.
Another Hat Tip to Larry and Ben...for all you've done...
Yo, you be de bes, big dogs.
Excellent comment. I agree, I see the Fed's balance sheet at $5T by next year. There really is no other choice.
No there is a choice, they just can't conceive of it because it is beyond their power- and Xanax-fueled 'bubble of unreality': progressive bond haircuts.
We could use the tax system to offset the hit on lower and middle income folks, churches, what have you and just write down the toxic paper.
But, NNNOOOOOOOOOOOOoooooooooo as Steve Martin would say. That would....work...and...and...hurt the superrich and furriners....and.....and stuff. Oh, and CAUSE THE WORLD TO END, that's it, yeah. Almost forgot.
In seriousness I think the real problem is the risk of blowing away the health and life insurance systems with bond writedowns which could cause the health care system to collapse. That would be interesting. Other than that it's all total bullshit.
Don't forget the pension system, too, and the 403-b annuities watched over by the mighty insurance companies that are now circling the drain.
With any luck, the health care implosion will come first, so that I won't live long enough to see my retirement funds vaporized.
Right, but the question is what good will that do? Transferring bad debt from one party to another doesn't cause the bad debt to go away. The only answer is to write down/eliminate the bad debt. Eventually, they will have to do write down the debt. All this QE/Euro Swap bullshit is just wasted time and effort accomplishing nothing.
I am advocating a writedown, but with some compensation to some parties. The writedown itself is the key; without it the whole shooting match goes down. That's where we are going now, in a MegaJapanese extravaganza of corruption, greed and (maybe) fear. Mostly corruption and greed though.
Writedowns are not necessarily all or nothing affairs. I was figuring 80% or so haircut with a small proportion of holders, say 25%, being eligible for say 50% compensation on their loss. Then overall you have roughly 1-(0.2 + (0.25*(0.5*0.8))) = 70% writedown in a politically saleable package.
OK?
Oh, absolutely, you don't have to go down to zero. I think you would only need to reduce it so the interest on the debt is increasing at less than the increase in GDP (or some better measure of economic activity). Denninger is correct about this matter. It really is just a matter of mathematics. The exponential growth function of debt and interest has to be reset.
It worked for Volcker in the 80's with a moratorium for LatAm debt. Problem exponentially bigger this time though...
deleted - reply posted to the wrong spot.
Gee, this day just keeps getting better.
If memory serves, the last time CP locked up, there was a weekend meeting to 'resolve.' Since the US has a long weekend (Monday holiday) this weekend, how is this going to play with the Great High Squid for his latest hiccup?
Gee, how much did that Euro intervention last week cost us now. Every bit of the intervention has been wiped out again and Euro is splattering.
Bernanke has to be the dumbest person on the planet. And this moron supposedly went to college and studied the Depression? I say we have him post his grades, because they couldn't have been all that great.
But I bet he got a AAA in Lab.
But I bet he got a AAA in Lab.
But I bet he got a AAA in Lab. He
But I bet he got a AAA in Lab. He seems
But I bet he got a AAA in Lab. He seems pretty
But I bet he got a AAA in Lab. He seems pretty good
But I bet he got a AAA in Lab. He seems pretty good at
But I bet he got a AAA in Lab. He seems pretty good at
But I bet he got a AAA in Lab. He seems pretty good at cooking
.
.
Goldman it, this Sachs. Someone please clean this multiple post mess.
Been eating donuts at the keyboard or gotcha finger in the wrong dyke?
ElvisDog says...
"Oh, absolutely, you don't have to go down to zero. I think you would only need to reduce it so the interest on the debt is increasing at less than the increase in GDP"
Nice in theory but markets have ways of compensating.
Thats why BB wants to keep secrets...
ROFLMAO !!
Since the fed and its member institutions are all in a twist over looking at borrowers credit worthiness rather than the collateral itself, Mr. Market has decided to spank the collateral as well. Starting right here in the CP space and with yield curve flattening. hahahhahahhahaha The flashlight beam does move forward in the third derivative while the morbidly obese get to look at flattening rather than fattening!!!