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Crescenzi: The Worries in Window Dressing

Monday, 30 Jun 2008 | 3:55 PM ET

There were strains evident in the credit markets at the end of the last two calendar quarters and again at the end of this quarter that help to explain the mindset leading to some of the weakness seen in markets of late.

Basically, end-of-quarter window dressing, an appealing option for financial companies and portfolio managers leery of the scrutiny of the marketplace, is adding to anxieties in the financial markets by putting downward pressure on poorly performing assets.

One glaring gauge of these anxieties can be found in the commercial paper market, an area of the financial markets where speculators are unlikely to reside and distort the messages that can be found in market prices.

The specific gauge that I am referring to is 1-day asset-backed commercial paper. Over the past week, the 1-day ABCP rate has increased from 2.40% to 2.95%, jumping 23 basis points today following a 16 basis point increase on Friday. These gains are highly unusual and follow a lengthy period of sideways movement. The last meaningful increases occurred near the end of the first quarter and the end of the fourth quarter of last year. The increases reflect an increase in risk aversion amongst investors. Over the past two quarters, ABCP rates (and LIBOR) fell after the window-dressing activity ended.

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Tony Crescenzi
Tony Crescenzi

Tony Crescenzi is the Chief Bond Market Strategist at Miller Tabak + Co., LLC where he advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the co-author of the just-revised "The Money Market" and "The Strategic Bond Investor."

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