Despite the
The last three days of last week, money-market investors put $50 billion into these Treasury and government-only funds, and scaled back $21 billion out of so-called prime money markets, according to
The stock market rose and the currency markets improved, but investors were not willing to take any risk with their cash holdings. The action signaling that the Fed failed to convince investors that problems in securities linked to the subprime mortgage loans wouldn’t cause extensive losses in usually safe securities.
Both individual and institutional investors are worried about risks in the commercial-paper market, and have been moving money to Treasury-only funds. Consequently, some funds that hold commercial paper are selling those holdings and Treasury-only funds to buy even more Treasury bills.
“The market is clearly saying that what the Fed has done isn’t enough. We’re having a crisis of confidence, and investors with the cash have no risk appetite at all,” said James Kauffmann, head of fixed income at
However, several analysts believe it is too soon to measure the full effect of the Fed’s effort to improve liquidity by encouraging banks to borrow. Fed officials have shown that they believe it will take some time to know if their actions have restored confidence to the debt markets.
Some economists say the Fed may have only a few days to wait for market conditions to improve. If conditions get worse, The Fed will have to take a more forceful step of cuttings its main interest rate target, the federal-funds rate, from the current 5.25%.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.