Fed Starting to Lend Mortgage Agency Debt Starting today, the Federal Reserve will make available to lend the debt it owns that was issued by mortgage agencies Fannie Mae (FNM), Freddie Mae (FRE) and the Federal Home Loan Bank system owns. The Fed’s agency securities are held in its Open Market Account, which has been comprised of the various debt issues the Fed has acquired as part of monetary policy activity. The Fed has long lent out its holdings primarily for the purpose of ensuring the smooth functioning of the repo market (where primary dealers go to finance their trading positions by borrowing U.S. Treasuries overnight from the U.S. central bank's holdings). This borrowing or lending program allows dealers to use these borrowed securities to raise short-term cash and/or settle trades. In recent months, the Fed’s holdings of agency debt, bought as a part ...

So goes the title of one of Shakespeare's plays, and as I am slowly adjusting to life in Lausanne and its beautiful environnements I am forced to admit the truthfulness of this axiom. Consequently, and while I have now settled down in a nice shared apartment I feel the need to confess my readers the tremendous difficulty with which I, finally, managed to secure housing in Lausanne. I will not belabor you with details, but merely pass on my humble advice that if you are ever going to Lausanne (indeed, the entire Vaud canton!) looking for short term rental accommodations ... bring valiums or deep pockets, and preferably both!

In any case that is now well past me and to prove that I am now safely and nicely housed I have chosen to flatter this entry

...

It never rains, but it pours; so goes an old adage and while the US authorities are still scrambling to figure out just what to do in the context of the erstwhile jewels, but now broken, mortgage giants Fannie and Freddie Mae foreign investors are beginning to vote, as it were, with their feet. As such, the big news so far this week must certainly be the extent to which portfolio managers at foreign central banks held suspiciously back in their hunger for Freddie Mac's three year note auction.  Reuters and the IHT provide the details. 

On Tuesday, Freddie Mac had to pay a steep premium on a $3 billion issuance of five-year debt. The company will pay an interest rate of 1.13 percentage points higher than the rate the U.S. government pays for comparable borrowing. Earlier this year, the premium was as low as 0.6 points, according to Bloomberg.Even with Freddie ...

[Update: Japan contracts 2.4% in Q2,]By Claus Vistesen CopenhagenIn my last note on Japan asked how much longer Japan could continue to fight off the incoming recession faced with a continuing shaky outlook on exports as well as a domestic economy steadily slowing down. Well, it seems as if the answer to this question can now be provided. With the recent news that industrial production continues its slowdown as well as the news that exports actually fell in June I am thus confident to stick with my call that Japan will enter a recession at some point in 2008-09. The exact timing will be suggested below.

In fact, a recession seems to be almost a foregone conclusion at this point since if we look at the recent messages emanating from official Japanese authorities, they are indeed bracing themselves for something ugly. Perhaps someone from

...

In my last note on Japan I asked how much longer Japan could continue to fight off the incoming recession faced with a continuing shaky outlook on exports as well as a domestic economy steadily slowing down. Well, it seems as if the answer to this question can now be provided. With the recent news that industrial production continues its slowdown as well as the news that exports actually fell in June I am thus confident to stick with my call that Japan will enter a recession at some point in 2008-09. The exact timing will be suggested below. In fact, a recession seems to be almost a foregone conclusion at this point since if we look at the recent messages emanating from official Japanese authorities, they are indeed bracing themselves for something ugly. Perhaps someone from the statistics department sent a primer of the Q2 GDP figures (due 13.08.2008) ...

By Claus Vistesen Copenhagen

[Update: Brad Setser clarifies, in the comment section, his view on Sender's FT piece referenced below]

THE last week (or was that year?) has certainly been something of a ride hasn't? In fact, I thought it would be apt to reproduce this picture by the brilliant KAL who normally spices up the Economist with his imagery that lay serious claim to the adage that a picture tells more than a thousand words. This particular specimen and the ensuing headline were on the front cover in October 1997 when markets also took investors and observers for a roller-coaster ride. I think it is quite fitting in describing the feeling many a trader and market participant must have at the moment.

Even though it could only seem as a few days ago that the credit turmoil went global

...

[Update: Brad Setser clarifies, in the comment section, his view on Sender's FT piece referenced below]

THE last week (or was that year?) has certainly been something of a ride hasn't? In fact, I thought it would be apt to reproduce this picture by the brilliant KAL who normally spices up the Economist with his imagery that lay serious claim to the adage that a picture tells more than a thousand words. This particular specimen and the ensuing headline were on the front cover in October 1997 when markets also took investors and observers for a roller-coaster ride. I think it is quite fitting in describing the feeling many a trader and market participant must have at the moment.

Even though it could only seem as a few days ago that the credit turmoil went global with BNP Paribas' announcement that it too

...

There is certainly a lot of commotion at the moment not least surrounding the rescue plan to shore up the two biggest US mortgage lenders Fannie and Freddie Mae, but also, and if we stay in the US we had the collapse of IndyMac, in Spain Martina-Fadesa is in the ropes and in Denmark we have Roskilde Bank. Especially, the last event prompted me into action as I decided to have a closer look at the Danish economy and where it might be heading. In many ways Denmark is similar to other credit crunch struck economies not least in the context of experiencing a severe unravelling of a housing boom. As we saw last week this is now beginning to have collateral damage. Yet, Denmark is also a bit different not least because the economy is going into this crisis with a positive balance both on the ...