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Terrifying action in the markets

August 3, 2011

FRA - OIS Spread

Just an FYI – we’re getting terrifying action in the interest rate markets.

The 3 month FRAOIS spread – the spread between overnight bank borrowing and overnight U.S. government borrowing* – is seeing huge gains.

In other cases, gains like this have meant there is a huge, worrisome problem in the world.  Right now, Europe is on the verge of blowing out, but will this mean a run in the european shadow banking system?  I don’t know.

The european leadership has been able to calm things down over and over again, but it’s pretty clear by now that the only solution is for the European Central bank to buy huge quantities of sovereign bonds.

Of course, this is political nitroglycerin. Macro Man will probably have some good insights if he will share them  Also, we shouldn’t discount his idea that currency interventions seem to solve the problem.

*This is a massive simplification, but good enough for non-pro’s, of course.


  1. August 3, 2011 at 8:25 pm

    By any chance do you have similar chart for entire 2008 !!!

    • TC
      August 4, 2011 at 7:34 am

      Bloomberg only goes back that far.

      You can use ted spread prior to that – its roughtly the same thing. It was a low, very flat line for years and years.

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