LIBOR Coming Down

The problem with LIBOR coming down is that it's been rendered irrelevant by our "Brave New World" of government guarantees on bank debt.

Lee Adler is making the point on Radio Free Wall Street that the Fed's guarantees are severely tilted towards short-term lending. The long-term is getting crushed. Two examples of this are 30-year interest rates and high yield bonds, which are paying 14-15 points over comparably dated Treasuries.

In other words, the Treasury is sucking most of the long-term funding out of the market. Just as by guaranteeing bank debt, world governments are suffocating the non-guaranteed market. This just looks like a mess to me, and I think it will take a long time to sort out.

One of the questions this raises is, "Will there be a widening or a narrowing of the price of short-term versus long-term funding?" Well, unfortunately, I am limited in how I play this. I am only willing to take one position on this corporate bond play, and I've done that with XGM. I'm unwilling to risk more than that. Closed-end funds are being touted as an option that provides diversity and a discount to net asset value, but many funds were leveraged, and that raises my research and time costs prohibitively at this point. Maybe I'll try to Google for five minutes and see what I come up with. But I won't touch a fund that's leveraged.