credit markets, whether they are managing mutual funds, clos, or hedge funds. the decisions of those asset managers are increasingly being driven by the preferences of institutional investors. and the decisions of the asset managers have a large influence on the pricing of credit, even for types of credit whose pricing historically was driven by the decisions of banks. a leveraged loan is commonly defined as a syndicated loan, typically to a riskier borrower, with an interest rate of at least libor plus 125 basis points. standard and poor ’ s leveraged commentary and data, “ leveraged lending review, ” 2006 : q3. one industry survey forecasts that institutions will account for roughly half of hedge fund inflows in 2007, up from virtually zero in 2000 ( “ hedge funds, ” international financial services, london, march 2006, p. 3, chart 7 ). benefits of recent developments the new instruments, markets, and participants i just described have brought some important benefits to credit markets. i will touch on three of these benefits : enhanced liquidity and transparency, the availability of new tools for managing credit risk, and a greater dispersion of credit risk. in listing these benefits, i am struck by the strong resemblance of what is happening right now in credit markets to what happened historically in other markets when derivatives were introduced. for example, the markets for agricultural commodities in the united states reaped some of these benefits when standardized futures contracts for wheat and other commodities were introduced in the middle of the nineteenth century. 5 historically, the secondary markets for corporate bonds, loans, and asset - backed securities were illiquid and not transparent. liquidity in these [ msg1 ] markets has improved over time but is still quite poor. for example, half of outstanding corporate bonds did not even trade once in the first three months of 2006. 6 individual bonds tend to be somewhat liquid immediately after they are issued, but trading activity declines quickly thereafter as investors put the bonds into buy - and - hold portfolios. also, shorting corporate bonds is very difficult. the dramatic improvement in credit market liquidity has been spurred by credit derivatives. one way to measure the improvement in liquidity is with bid - ask spreads. for investment - grade corporate bonds – a relatively liquid part of the bond market – the bid - ask spread averaged 64 basis points last year. 7 the bid - ask spreads for single - name investment - grade cds, however, are typically only 10 basis points or less, and

##ling, the efficacy and desirability of a given policy should be judged solely by its outcome and its effectiveness in correcting market failures and imbalances. only then can policies be evaluated intelligently, fairly and measurably. today i have talked about how it has become more difficult for central bankers in open economies to conduct monetary policy. i attempted to highlight that in order to manage these difficult challenges, there needs to be sufficient pragmatism and agility by central bankers. most importantly, policymakers have to be given sufficient space and autonomy to address rising challenges to our respective economies. i am reminded by john baldoni ’ s article on “ the secret to team collaboration : individuality ”. the author warned about the risks of confusing between collectivism and collaboration. collectivism leads to confined “ group - think ” and decisions ; collaboration on the other hand breeds innovation. while collectivists do work towards a single goal, they ignore alternate paths to achieve that purpose. collaborators, however, while similarly focused on a single purpose, arrive at their goals by incorporating different points of view and creative solutions. in short, collectivists value ideology over results. collaborators are pragmatists that look for alternative ways to get things done. as we move forward and fight for greater policy autonomy, we might be tempted to think that integration and collaboration come at the expense of individuality and domestic autonomy. in my opinion, it is the exact opposite. collaboration thrives with individuality and autonomy. this is not wishful thinking. with the right instruments and tools, and considerable agility, policy autonomy is not only attainable ; it can be the perfect catalyst for powerful collaboration as we move forward. let us collaborate rather than be restrained by collectivism. 5 / 5 bis central bankers'speeches