Friday, November 21, 2008

Credit Crisis Indicators

by Bill McBride on 11/21/2008 09:49:00 AM

Yesterday saw a stunning flight to treasuries across the board. The 3-month yield fell to zero. The 2 year yield was at a record low. Even the 30 year yield decreased sharply. The 3-month at zero can be explained as a flight to quality and another crisis in the credit markets, but the declines in the longer yields probably suggest deflation trades.

Here are a few indicators of credit stress once again suggesting little progress over the last few days.

  • The three month LIBOR increased slightly to 2.16% from 2.15%. The three-month LIBOR rate peaked (for this cycle) at 4.81875% on Oct. 10. (unchanged)

    TED Spread
  • The TED spread: 2.13. (slightly worse)

    The TED spread is stuck above 2.0, and 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 around 0.5.

  • The yield on 3 month treasuries increased to 0.045% from 0.01%. (bad). Still essentially zero!

    The 10-Year Treasury Note yield is also up slightly at 3.17%. The rush to treasuries of all durations was stunning yesterday!

    A2P2 Spread
  • The A2P2 spread decreased to 4.16 from a record (for this cycle) 4.83 (Better).

    This is the spread between high and low quality 30 day nonfinancial commercial paper. If the credit crisis eases, I'd expect a significant decline in this spread - and the graph makes it clear this indicator is still in crisis.

    Two Year Swap
  • The two year swap spread from Bloomberg: 107.5, up slightly from 103.0 (unchanged). This spread peaked at near 165 in early October, so there has been significant progress, but I'd like to see this below 100.

    For the LIBOR, the TED spread, and the two-year swap, there has been clear progress - but there is still a ways to go. For the A2P2 spread (and all treasury yields), the markets are still in crisis.