by Bill McBride on 10/30/2008 10:56:00 AM
Thursday, October 30, 2008
According to data from the British Bankers' Association, three-month U.S. dollar Libor fell to 3.1925% from Wednesday's fixing of 3.42%. The rate peaked at 4.81875% on Oct. 10.
The 3 month yield was close to zero for a few days, so this is still some improvement from the worst of the credit crisis. 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%. Update: however, the effective Fed Funds rate is even lower (0.67% yesterday), so a 3 month yield of 0.48% is in the right range.
I'd like to see the spread move back down to 1.0 or lower - at least below 2.0.
Here is a list of SFP sales. No announcement today. no progress.
During a recession, this spread usually increases because the risk of default for lower quality paper increases. However the recent values (over 400 bps) are far in excess of normal. If the credit crisis eases, I'd expect a significant decline in this spread. The high for the A2P2 spread was 4.66, and there has been no progress here.
The LIBOR is down and the TED spread is off a little, but the A2P2 spread is at a record high - so there is some progress in some areas, and none by other measures.
Posted by Bill McBride on 10/30/2008 10:56:00 AM