Wednesday, November 12, 2008

Credit Crisis Indicators: A little Progress

by Bill McBride on 11/12/2008 12:57:00 PM

As economic activity falls off a cliff, here is the daily look at a few credit indicitors ...

  • LIBOR declined again today:
    The 3-month Libor rate fell to 2.13% from 2.18%, according to Dow Jones, the lowest level for the rate since Oct. 27, 2004.
    The three-month LIBOR was 2.18% yesterday. The rate peaked at 4.81875% on Oct. 10. (Better)

  • The yield on 3 month treasuries fell to 0.145% for 0.20%. (worse)

    With the effective Fed Funds rate at 0.27% (as of yesterday), this is probably somewhat in the right range. At some point, I'd like to see the effective Fed funds rate close to the target rate (currently 1.0%).

  • The TED spread: 1.98, down slightly from 2.02 (slightly better)

    The TED spread is under 2.0, but still too high. The peak was 4.63 on Oct 10th. I'd like to see the spread move back down to 1.0 or lower. A normal spread is about 0.5.

  • The two year swap spread from Bloomberg: 100.62 down slightly from 103.75 (slightly better). This spread peaked at near 165 in early October, so there has been significant progress, and we are almost 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. It has been a few days without an announcement from the Treasury... (no progress).

  • Weekly Fed Balance Sheet. This will be updated tomorrow.

    So far the Federal Reserve assets are still increasing rapidly. It will be a good sign - sometime in the future - when the Fed assets start to decline.

  • The A2P2 spread is up to 4.61 from 4.23 last week, and down from 4.72 two weeks ago . (Worse).

    This is the spread between high and low quality 30 day nonfinancial commercial paper.

    The Fed is buying higher quality commercial paper (CP) and this is pushing down the yield on this paper (0.65% yesterday!) - and increasing the spread between AA and A2/P2 CP. So this indicator has been a little misleading. Also the recession is creating concern for lower rated paper. Still, if the credit crisis eases, I'd expect a significant decline in this spread.

    The LIBOR is down and the TED spread is slightly lower - so there is a little progress today, but there is still a long way to go.