Functioning in interbank and other short-term funding markets has improved considerably, interest rate spreads on corporate bonds have narrowed significantly, prices of syndicated loans have increased, and some securitization markets have resumed operation. Equity prices have increased sharply since their low in early 2009, and consensus forecasts of year-ahead corporate earnings have been rising.
We rely on financial markets to transmit these rates through a variety of channels to the rates paid by households and businesses—and to financial conditions more broadly. In mid-September, an important channel in the transmission process—wholesale funding markets—exhibited unexpectedly intense volatility. Payments to meet corporate tax obligations and to purchase Treasury securities triggered notable liquidity pressures in money markets.