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IPFS News Link • Currencies

Dollar Shortage Unexpectedly Surges After Fed Commercial Paper Bailout

• by Tyler Durden

As Bloomberg notes, the spread of Libor to overnight index swaps should tighten as the Federal Reserve ramps up the reinstated Commercial Paper Funding Facility (CPFF).

Though we think the Fed and the Treasury are generally concerned about liquidity, a freezing of the CP market for industrial companies is a larger risk than for financial firms during the current crisis, in our view.

In 2007-09, asset-backed CP was the major risk, but today that's less of a worry.

Industrial companies have few options other than CP for short-term financing, unlike financials, which can tap the discount window and other liquidity sources.