Bond Markets jump as Equity falls down

Following Lehman’s bankruptcy, Merrill’s demise and AIG’s restructuring plans it seems investors’ confidence was faded away. There was a huge demand for fixed income securities in the US market. The prices went up so high that the yields touched 2001 lows. The investors wanted to put their money in safe government bonds as the equity market tumbled down and there are no signs of immediate recovery.

"For markets, the question is whether the liquidation of Lehman’s illiquid assets … will force other dealers to mark down the value of their holdings, resulting in another wave of write-downs and fire-sales that could destabilize markets," said BMO Capital Markets analysts.

Federal bank today added $70 billion in reserves to the banking system through repurchase agreements (REPOs). This is unusually high amount in light of the demand for reserves from banks. This is a move to keep overnight lending rates in control. The actual rate that banks were trading fed funds today rose as high as 8% at one point, the widest in at least 20 years.
 

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September 15, 2008 | Filed Under Market Analysis 

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