Nov 3, 2008

Credit Crisis Indicators: Some More Progress

  • LIBOR declined again today, from Bloomberg:
    The London interbank offered rate, or Libor, that banks charge one another for three-month loans in U.S. currency slid 17 basis points to 2.86 percent today, a 16th day of declines, data from the British Bankers' Association showed. It hasn't been as low since the failure of Lehman Brothers Holdings Inc. on Sept. 15.
    The rate peaked at 4.81875% on Oct. 10.

  • The yield on 3 month treasuries declined slightly to 0.44% from 0.42%. (unchanged)

    Usually the 3 month trades below the target Fed Funds rate by around 25 bps, so this is too low with the Fed funds rate at 1.0%. However, the effective Fed Funds rate is even lower (0.30% yesterday), so a 3 month yield of 0.44% is in the right range. I'd like to see the effective funds rate closer to the target rate.

  • The TED spread: 2.39, down from 2.60 (Better) This is still too high, but significantly below the peak of 4.63 on Oct 10th.

    I'd like to see the spread move back down to 1.0 or lower - at least below 2.0.

  • The two year swap spread from Bloomberg: 125.30 up slightly (slightly worse). This spread peaked at near 165 in early October, so there has been significant progress, but the spread seems stuck now. I'd like to see this under 100.

  • Activity in the Treasury's Supplementary Financing Program (SFP). This is the Treasury program to raise cash for the Fed's liquidity initiatives. If this program slows down borrowing, I think that would be a good sign.

    Here is a list of SFP sales. The Treasury announced another $30 billion for the Fed today ... no progress.

  • The A2P2 spread is down to 4.58 from a record 4.72. Slightly better.

    The Fed is buying higher quality commercial paper (CP) and this is pushing down the yield on this paper (0.97% on Friday!) - and increasing the spread between AA and A2/P2 CP. So this indicator is a little misleading right now. Still, if the credit crisis eases, I'd expect a significant decline in this spread.

    The LIBOR is down and the TED spread is off again, so there is a little more progress.


  • source: CalculatedRisk

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