Tuesday, March 17, 2009

Credit Crisis Indicators

by Bill McBride on 3/17/2009 10:58:00 AM

Here is a quick look at a few credit indicators:

First, the British Bankers' Association reported that the three-month dollar Libor rates were fixed at 1.30%, down from 1.31% on Monday. This has been a slight improvement over the last week.

Spread Corporate and Treasury Click on table for larger image in new window.

The first graph shows the spread between 30 year Moody's Aaa and Baa rated bonds and the 30 year treasury.

There has been some increase in the spread the last few weeks, but the spread is still way below the recent peak. The spreads are still very high, even for higher rated paper, but especially for lower rated paper.

The Moody's data is from the St. Louis Fed:

Moody's tries to include bonds with remaining maturities as close as possible to 30 years. Moody's drops bonds if the remaining life falls below 20 years, if the bond is susceptible to redemption, or if the rating changes.
A2P2 Spread There has been improvement in the A2P2 spread. This has declined to 0.84. This is far below the record (for this cycle) of 5.86 after Thanksgiving, but still above the normal spread.

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

TED Spread Meanwhile the TED spread has decreased a little over the last week, and is now at 107.5. This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th and a normal spread is around 50 bps.

Spread Corporate Master and Treasury This graph shows the at the Merrill Lynch Corporate Master Index OAS (Option adjusted spread) for the last 2 years.

This is a broad index of investment grade corporate debt:
The Merrill Lynch US Corporate Index tracks the performance of US dollar denominated investment grade corporate debt publicly issued in the US domestic market.
The recent surge in this index was a cause for alarm, but the index appears to have stabilized over the last week.

All of these indicators are still too high, but at least none of them are increasing this week.