Wednesday, May 12, 2010

Dysfunctional Debt Securities Markets

Who cares, why debt securities markets get dysfunctional? More important, whatever cost, to:
... address the malfunctioning of securities markets and restore an appropriate monetary policy transmission mechanism.
Since the end of 2007 banks have it difficult to fund themselves in debt markets (and not only in the Euro area) versus non-financials. It is better to cheat the money markets via ZIRP. By the way, ZIRP sets the extreme limit for credit markets to "eat" the "non-existing" relative value via ever lower policy rates.

Click on chart to enlarge, courtesy of Nomura.

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