In the meantime, as we noted yesterday, what is helping in addition to growing expectation of further QE has been the POMO (Permanent Open Market Operation) actions by the Fed, where the Fed purchase USTs and put money out into the financial system, increasing the liquidity in the system and reducing the amount of USTs to help bring down yields and hence risk premia and this dynamic plays out throughout the risk spectrum. By not retiring cash from mortgages that are being refinanced and maturing, the Fed is preventing the money supply rate M1 from falling and also hurting a fragile economy.
Click on chart to enlarge, courtesy of BNP Paribas.
Is it free market capitalism?
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