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Thursday, November 13, 2008

Credit Crisis Indicators: LIBOR Rises Slightly

by Calculated Risk on 11/13/2008 12:15:00 PM

As economic activity falls off a cliff, here is the daily look at a few credit indicators ...

  • LIBOR increased today breaking a 23 day streak of declines:
    The London interbank offered rate, or Libor, that banks say they charge each other for such loans increased almost 2 basis points to 2.15 percent today, according to British Bankers' Association data. The last time the rate climbed was Oct. 10.
    The three-month LIBOR was 2.13% yesterday so this isn't much of a change. The rate peaked at 4.81875% on Oct. 10. (unchanged)

  • The yield on 3 month treasuries rose to 0.18% from 0.145%. (slightly better)

    This is just plain ugly, but with the effective Fed Funds rate at 0.29% (as of yesterday), this is probably somewhat in the right range. At some point, I'd like to see the effective Fed funds rate close to the target rate (currently 1.0%) and the 3 month yield within 25 bps of the target rate.

  • The TED spread: 1.98, unchanged (unchanged)

    The TED spread is under 2.0, but 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 about 0.5.

  • The two year swap spread from Bloomberg: 112.25 up from 100.62 (worse). This spread peaked at near 165 in early October, so there has been significant progress, but I'd like to see this below 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. It has been a few days without an announcement from the Treasury... (no progress).

  • Weekly Fed Balance Sheet. This will be updated this afternoon.

    So far the Federal Reserve assets are still increasing rapidly. It will be a good sign - sometime in the future - when the Fed assets start to decline.

  • The A2P2 spread is down to 4.47 from 4.61 earlier this week, and down from 4.72 two weeks ago. (slightly better).

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

    The Fed is buying higher quality commercial paper (CP) and this is pushing down the yield on this paper (0.65% yesterday!) - and increasing the spread between AA and A2/P2 CP. So this indicator has been a little misleading. Also the recession is creating concern for lower rated paper. Still, if the credit crisis eases, I'd expect a significant decline in this spread.

    Mostly a "no progress" day for these indicators ... there is a long way to go. I'm looking forward to seeing the Fed's balance sheet (to be released at 4:30PM ET).