Thursday, October 30, 2008

Credit Crisis Indicators: Mixed

by Calculated Risk on 10/30/2008 10:56:00 AM

  • LIBOR declined today from the WSJ:
    According to data from the British Bankers' Association, three-month U.S. dollar Libor fell to 3.1925% from Wednesday's fixing of 3.42%. The rate peaked at 4.81875% on Oct. 10.
  • The yield on 3 month treasuries declined sharply to 0.48% from 0.60%. (Worse)

    The 3 month yield was close to zero for a few days, so this is still some improvement from the worst of the credit crisis. Usually the 3 month trades below the target Fed Funds rate by around 25 bps, so this is too low with the Fed funds rate at 1.0%. Update: however, the effective Fed Funds rate is even lower (0.67% yesterday), so a 3 month yield of 0.48% is in the right range.

  • The TED spread: 2.70, down from 2.82 (Slightly better) This is way too high, but significantly below the peak of 4.63 on Oct 10th.

    I'd like to see the spread move back down to 1.0 or lower - at least below 2.0.

  • The two year swap spread from Bloomberg: 114.62 down from 115.88 (slightly better). This spread peaked at near 165 in early October, so there has been significant progress, but I'd like to see this 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. No announcement today. no progress.

  • The A2P2 spread is at a record 4.69 up from 4.55. Worse.

    During a recession, this spread usually increases because the risk of default for lower quality paper increases. However the recent values (over 400 bps) are far in excess of normal. If the credit crisis eases, I'd expect a significant decline in this spread. The high for the A2P2 spread was 4.66, and there has been no progress here.

    The LIBOR is down and the TED spread is off a little, but the A2P2 spread is at a record high - so there is some progress in some areas, and none by other measures.