Tuesday, October 28, 2008

Credit Crisis Indicators: Mostly Unchanged

by Calculated Risk on 10/28/2008 12:15:00 PM

  • The yield on 3 month treasuries: 0.77%, down slightly from 0.82% (unchanged)

    The 3 month yield was close to zero for a few days, so this is a significant improvement from the worst of the credit crisis. With the pending Fed Funds rate cut it is hard to guess just how high the 3 month should rise. Usually the 3 month trades below the Fed Funds rate by around 25 bps, so the current yield might be reasonable.

  • The TED spread: 2.69 down slightly from 2.76 (slightly better) This is still 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: 123.25 up from 117.75 (slightly worse). 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 4.35, up slightly from 4.32. unchanged.

    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 around 4.6 (I don't have the exact number)

  • I spoke with a senior manager at a public company yesterday, and his company has just received loan commitments from two major lenders for an acquisition (this is a good acquisition for all parties). Both lenders are on the list of banks receiving capital from the Treasury. This is a marginal credit risk deal, so I consider this a positive sign. The deal isn't done, but this is definite progress. (Note: the company is publicly traded so I can't reveal any details).

    This is another day with little progress.