Sunday, May 03, 2009

Credit Crisis Indicators

by Bill McBride on 5/03/2009 03:53:00 PM

It has been some time, so here is a look at few credit indicators:

First, the British Bankers' Association reported Friday that the three-month dollar Libor rates were fixed at 1.007%. The LIBOR was at 1.30% a few weeks ago, and peaked at 4.81875% on Oct 10, 2008. The dollar LIBOR might break below 1.0% this week.

A2P2 Spread Click on graph for larger image in new window.

There has been improvement in the A2P2 spread. This has declined to 0.56. 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 SpreadMeanwhile the TED spread has decreased further over the last week, and is now at 86.39. 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 and Treasury The third graph shows the spread between 30 year Moody's Aaa and Baa rated bonds and the 30 year treasury.

The spread has decreased sharply over the last couple of weeks. The spreads are still very high, 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.
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.
Back in early March, Warren Buffett mentioned that credit conditions were tightening again - and this was probably one of the indexes he was looking at. Since March, the index has declined.

All of these indicators are still too high, but there has been progress.

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