Credit Crisis Indicators: More Progress

by CalculatedRisk

LIBOR declined again today, from Bloomberg:

The London interbank offered rate, or Libor, for three- month loans fell to 2.51 percent today, from 4.82 percent on Oct. 10.

The three-month LIBOR was at 2.71 yesterday. The rate peaked at 4.81875% on Oct. 10.

The yield on 3 month treasuries fell slightly to 0.44% from 0.47%. (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 (0.23% yesterday), so maybe the 3 month yield of 0.44% is somewhat in the right range.

The TED spread: 2.07, down from 2.23 (Better) This is still high, but significantly below the peak of 4.63 on Oct 10th.

It is nice to be back near 2.0, and I'd like to see the spread move back down to 1.0 or lower.

The two year swap spread from Bloomberg: 105.12 down from 116.52 (slightly better). This spread peaked at near 165 in early October, so there has been significant progress, and 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. No announcement today from the Treasury ... no progress.

Note: Once a week I will include the Fed balance sheet assets. If this starts to decline that would be a positive sign.

The A2P2 spread is down to 4.18 from 4.45 yesterday and a record 4.72 last week. 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 has been a little misleading. But it now sounds like the Fed might intervene in other companies and just the talk of possible Fed action is probably pushing down the A2/P2 rates. If the credit crisis eases, I'd expect a significant decline in this spread.

The LIBOR is down, the TED spread is off again, the A2/P2 spread declined - so there is more progress.

source: calculated risk

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