QCAM: Not a funding crisis yet

Bernhard Eschweiler, PhD, Senior Economist QCAM Currency Asset Management AG

In our judgment, the balance is gradually tipping to- wards the second scenario. The situation is aggravat- ed by Saudi Arabia’s announced supply increase and the resulting collapse in oil prices. As bad as the market selloff has been, however, a systemic funding and liquidity crisis has not yet occurred. Credit spreads have increased but actual borrowing rates have hardly moved higher because of the drop in underlying government bond yields. Moreover and importantly, there are no signs of significant stress in the banking system, thanks also to the liquidity support by central banks.

Targeted help from policy is critical. The US Fed already cut interest rates by 50 bps and is expected to cut at least another 25 bps. Most other central banks are in the process or expected to ease policy in the form of additional liquidity support, interest rate cuts and special facilities to support firms struggling with temporary funding bottlenecks. Similar measures are coming from fiscal policy. The EU Commission allowed Italy to overstep the deficit target in order to combat the spreading of Covid-19 and other countries have announced labor market and financial support measures.

The full report is available at https://q-cam.com/wp-content/uploads/2020/03/QCAM-MONTHLY-March-2020.pdf

Related Posts

Previous Post
Goldman: Barclays, Nordea and more join call to improve safety of CCPs
Next Post
Fed increases repo liquidity for the next month to $175b overnight and $45b two week term

Related Posts

Fill out this field
Fill out this field
Please enter a valid email address.


Reset password

Create an account