What's New

Category: What's New in 2008

The Weekly Bottom Line

The Weekly Bottom Line
October 24, 2008

HIGHLIGHTS

• Bank of Canada cuts rates 75bps in October, signals more to come
• Largest 4-week decline in the Canadian dollar ever

Financial markets continue to be rocked by the ongoing elevated costs of bank funding, the uncertainty over
the future economic landscape, and the need to reduce debt levels and leverage as a result of both of these factors.
While the massive spike in the closely watched LIBOR-OIS spreads over late September and early October
has receded, it remains unsustainably high. Moreover, contagion has led these problems to bleed into sectors
and nations thought to be reasonably insulated from the subprime mess. Derivative products such as interest rate
swaps widely used by corporations to hedge their interest rate risks – and tied to LIBOR rates – skyrocketed over
the last month, making it that much more difficult for firms to manage risks. Corporations who raise money through
commercial paper markets continue to have problems issuing any short-term debt with a maturity longer than a
week. Emerging markets in Asia, Latin America, and Eastern Europe have seen the taps virtually turned off
when it comes to investor inflows. Moreover, the massive volatility itself we are seeing in equity, currency, and
commodity markets has costs for the global financial markets and economies. Click here to read the full article.

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