Naturally, credit spreads kept widening. Since April, the high point for bond arbitrage, A-rated bonds had moved from 60 points over Treasurys to 90 points. U.S. swap spreads were rising, too. At every Wall Street bank, arbitrage desks were cutting back; capital was fleeing from bond arbitrage just as it had fled from Asia. The Fed, at first, had been favorably disposed toward the trend. Spreads had been tight, credit too easy. But now, in the context of Russia’s meltdown, the Fed’s nerves were on edge.
