by Calculated Risk on 11/17/2008 10:20:00 AM

Another daily look at a few credit indicators ...

LIBOR increased half a basis point:

The London interbank offered rate, or Libor, that banks say they charge each other for such loans rose less than half a basis point to 2.24 percent today, British Bankers' Association data showed.

The three-month LIBOR was 2.23% yesterday and the rate peaked at 4.81875% on Oct. 10. (unchanged)

The yield on 3 month treasuries increased to 0.17% from 0.145%. (unchanged).

With the effective Fed Funds rate at 0.35% (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.

But for now, the Fed is engaged in quantitative easing.

The TED spread: 2.07, down from 2.09 (unchanged)

The TED spread is above 2.0 again, and 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 around 0.5. From reader Kai using data back to 1986: "The average TED spread is 58bps, but the median TED spread is 42bps and the non-crisis (i.e. less than 100bps spread) median is 37.8bps."

The two year swap spread from Bloomberg: 108.75, down slightly from 112.75 (unchanged). This spread peaked at near 165 in early October, so there has been significant progress, but I'd like to see this below 100.

Weekly Fed Balance Sheet (update weekly on Thursday)

The Federal Reserve assets increased $139 billion last week to $2.214 trillion.

The A2P2 spread is down to 4.05 from 4.44, and down from 4.72 two weeks ago. (better).

Click on graph for larger image in new window.

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 (0.50% 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.

Another day with no improvement ... (except the A2/P2 spread).

Note: The Fed's balance sheet is interesting and I'll try to have more on how the Fed is funding their initiatives and quantitative easing. See Bernanke's paper from 2004: Conducting Monetary Policy at Very Low Short-Term Interest Rates One thing is clear - the target Fed funds rate is pretty much meaningless right now.