Central Banks Still Injecting Funds

Excerpts below from an article in the WSJ indicates that the central banks (ECB, the Fed, BOJ, etc.) are still injecting funds into the credit markets. But the amount is much lower than the massive amounts pumped into the markets almost two weeks ago.

The Federal Reserve injected $3.75 billion, following the $3.5 billion it put into markets Monday. The European Central Bank allotted €275 billion ($371 billion) in one-week funds, which is €46 billion more than it estimated banks need for routine business. And the Bank of Japan put 800 billion yen ($6.96 billion) into its market, following an infusion of one trillion yen Monday.

Meanwhile, Russia's central bank hurried to buoy the weakening ruble and keep money rates stable. In a rare move, Russia's central bank sold around $4.5 billion on the market yesterday to help support the ruble, traders said. It also injected 87.8 billion rubles ($3.4 billion) into the market through two one-day securities repurchase agreements.

Japan's finance minister, Koji Omi, said he had spoken by telephone with U.S. Treasury Secretary Henry Paulson as they work together closely to monitor the recent financial-market turmoil.
Among major central banks, the Bank of England has stood out for its reluctance to pump extra funds into markets. The use of the standing facility typically goes unnoticed by the broader markets. But the short-term debt market is in such disarray that even the slightest hint of more trouble could roil markets.

"The London money markets are still very tight," said David Page, U.K. economist at Investec. "The [Bank of England's] lack of intervention, especially compared with other central banks, has been to the detriment of the London market."

The euro commercial-paper market has also slowed significantly in recent days. Short-term debt investors, who typically buy the corporate IOUs without concern, have been unwilling to risk that the paper might not be renewed or paid down.

The worst hit is the asset-backed commercial-paper market, where affiliates of banks or money managers sell short-term debt to pay off investors and buy assets such as mortgage-backed securities.

To be sure, some euro commercial paper is being sold, albeit for much shorter maturity dates than usual. A normal duration date for the short-term debt is one to three months. But much of the debt that traded Monday had much shorter maturities and was increasingly expensive for the debt sellers to issue.

In the euro zone, the ECB's second-consecutive surplus weekly infusion shows euro-zone banks remain unusually hungry for cash. Still, it is less than the extra €73.5 billion the bank injected during its weekly refinancing operation last week. The bank said it is trying to mop up some of those excess funds.