Global Central Bank Intervention Arrives

The Federal Reserve has issued some news that equity investors are going to love, and bond investors may enjoy the news as well as it could stop the blood-letting of bond spreads.  The Federal Reserve has just announced a coordinated action along with The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.

The action is said to “enhance their capacity to provide liquidity support to the global financial system… to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”

As part of the action, these central banks are lowering the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points. The new rate will be the U.S. dollar overnight index swap rate plus 50 basis points and it takes effect from December 5, 2011 and has been extended to February 1, 2013. 

In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.

The Fed is also promising that it can add in more liquidity and easing efforts to provide an effective liquidity backstop for U.S. institutions “and is prepared to use these tools as needed” if the current woes of the international markets start to lock-out U.S. financial institutions.

FULL DETAILS

JON C. OGG