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US: Fed targets the CP market

Wed, Oct 8 2008, 07:38 GMT
by Peter Possing Andersen, Signe Roed-Frederiksen

Danske Bank A/S


Overview: The Federal Reserve has taken a drastic step in order to unfreeze the US commercial paper market. The central bank announced in a statement today that it will create a special purpose vehicle to purchase three-month secured and unsecured commercial papers directly from eligible issuers. This move comes in response to a sharp fall over the past two weeks in the amount of outstanding unsecured CP which has exacerbated the funding difficulties faced particularly by the financial sector, compounding the gridlock in money markets and its negative consequences for overall credit availability (see Flash Comment - Global: Crisis update - what's next? and Research - CP market and money markets gridlocked).


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