by Bill McBride on 10/13/2008 09:30:00 AM
Monday, October 13, 2008
Here are a few indicators I'm watching for progress on the credit crisis.
Click on graph for larger image in new window.
This graph shows the high, low, and the close for the three month treasury bill since the beginning of the year.
A good sign would be if the daily volatility subsides, and the yield moves up closer to the Fed funds rate, or about 1.25%.
Any significant decline would suggest progress, and a decline below 1.0 would indicate this wave of the crisis is over.
Edit: From Econbrowser:
One measure that is being used to summarize the strain in financial markets is the TED spread. This is calculated as the gap between 3-month LIBOR (an average of interest rates offered in the London interbank market for 3-month dollar-denominated loans) and the 3-month Treasury bill rate.Usually the TED spread is less than 0.5%. The higher the spread, the greater the perceived credit risks (compared to "risk free" treasuries).
Here is a list of SFP sales.
This is the spread between high and low quality 30 day nonfinancial commercial paper.
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.
In the comments, bond guy writes:
The T-Bill rates will probably take time to settle down. This means that the TED spread will probably be volatile for awhile.
I'd argue that a better indicator will be the 2-year swap spread (spread between 2-year swap rate and 2-year Treasury). If that can come down to 50 bps or so (from over 150), that would mean that the markets would be discounting spread normalization over the coming years.
Posted by Bill McBride on 10/13/2008 09:30:00 AM