by Bill McBride on 11/21/2008 09:49:00 AM
Friday, November 21, 2008
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 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 10-Year Treasury Note yield is also up slightly at 3.17%. The rush to treasuries of all durations was stunning yesterday!
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.
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.