Investors rush back to T-bills as credit markets worsen

There’s a big disconnect between the stock market and the credit markets today. The former is calm, while the latter is in another panic.

Rates bank charge each other for short-term loans are soaring again, a sign that credit conditions remain in a deep freeze. One-month U.S. dollar Libor -- the London inter-bank offered rate, a banking industry benchmark -- has jumped to 3.43%, up from 3.21% on Tuesday and the highest since January.

That Libor rate has surged from 2.5% on Sept. 15, despite all of the moves the Federal Reserve has made to pump cash into the banking system over the last week.

Meanwhile, spooked investors again are hoarding short-term Treasury bills, driving yields sharply lower. The 3-month T-bill yield fell as low as 0.36% this morning from 0.72% on Tuesday, and was at 0.46% at about 12:15 p.m. PDT.

At the height of last week’s panic the 3-month T-bill yield was nearly zero, as investors were willing to accept no yield at all just to safeguard their principal. Things aren’t that bad this week, but they’re getting closer.

"Credit markets have taken a significant turn for the worst in the last two days," said Michael Darda, economist at investment firm MKM Partners.

Not surprisingly, everyone’s blaming Congress: In theory, bankers don’t want to lend because they’re fearful that the $700-billion financial-system bailout package will be delayed or watered down.

The market "wants something to be passed," said Michael Pond, interest-rate strategist at Barclays Capital.

Freaked-out credit markets give Federal Reserve Chairman Ben S. Bernanke another prod in trying to push Congress to approve a bailout bill, and fast.

"Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress," the Fed chief told Congress today. "Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy."

Comments

[Carracticus]

Hundreds of thousands of mortgages were sold to illegal immigrants, who could hardly afford the high standard of living in this nation. Incorrigibles brokers fraudulently negotiated loans for homes with little or no cost in moving into a property. Today we have the largest bail out of giant mortgage firms, accelerated foreclosures as illegal alien families unable to pay the escalating mortgages walked away. By flooding the market with unqualified buyers, government bureaucracies have artificially stimulated housing demand, which caused home purchases to explode, leading to the unsustainable housing price bubble that has finally burst.

http://www.familysecuritymatters.org/publications/id.1258/pub_detail.asp Just about anyone can get a "stated income" loan provided one's FICO SCORE is high enough. By lowering the scale enough, Uncle Sam has indeed brought diversity to house ownership. However, at a terrible cost? Now we have a economic rapture, that taxpayers must bailout that has placed the country in almost economic collapse. All in the name of diversity, given to us by greedy corrupted Wall street and tainted politicians. Judicial watch for facts on corruption. Numbersusa to stop this decline in our sovereignty.

[Mike brown]

I have heard that there is a run on banks by large bank depositers (1 million or more) fearing loss of funds if the bank fails. A lot of this money is going into T-bills. A solution to this is to increase FDIC insurance to one million or higher. Depositers could be charged a fee for this service. Without this wholesale bank failures could result
Mike Brown

[James Monachino]

Safety First

Time to focus on income preservation. Take a break from the yield hunt. Their are to many sand traps out their at the moment to make a really intelligent decision.

Pay down bills and hunker down for the financial winter that is coming. You don't have all the facts and the move toward short term t-bills is one of a few logical places to try and take cover.

James Monachino

[Franklin D. Cole]

My wife and I are considering on taking out a reverse mortgage. We are both over 65. But, I am concerned about the interest rate charged on the mortgage.
The mortgage would be an ARM with the rate linked to the T-Bill rate. What happens to the T-Bill rate when the stock market turns around and the private money that is now going in to T-Bills goes back into the Stock Market? This will, I think, cause the T-Bill demand to to fall and therefore cause the T-Bill Rate to increase and the rate charged on the reverse mortgage? Am I correct in that thinking? I am concerned because I would like something of the value of my house to survive my wife and I to the benefit of our kids. Anyone have thoughts about this?