Some good observations by Wrightson ICAP on....>

STIR: Some good observations by Wrightson ICAP on the April FOMC minutes'

discussion of the non-adjustment of IOER at the meeting (markets saw a broadly

even chance of a +5bps tweak).

- While the FOMC reasoned that the Federal Home Loan Banks (which do the lion's

share of lending in the Fed funds market) can earn a zero rate on balances

maintained in their account at the Fed, thus creating a floor of sorts if Fed

funds were to dip that low, Wrightson ICAP note that if this were to become the

case consistently then "volume in the fed funds market would collapse and the

Fed's policy rate - and the reference rate underlying the whole OIS/fed funds

futures complex - would become highly volatile."

- They also note that with this decision and the underlying reasoning, the Fed

has raised the bar for future IOER adjustments as it is willing to accept a low

effective Funds rate. As such, Wrightson believes the effective rate would have

to fall to 0.02% before the Fed made an adjustment, and even then a tweak may

just be a few basis points.