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Friday, November 18, 2011

Credit Stress Indicators

by Calculated Risk on 11/18/2011 09:01:00 AM

It has been a long time since I posted a few indicators of credit stress.

First - I want to reiterate that the U.S. economic data has looked better recently and Q4 U.S. GDP should be OK (more sluggish growth). I think the most likely path is no U.S. recession in 2012. However there are downside risks - especially from the European financial crisis (and apparently European recession) and also from more fiscal tightening the U.S..

The somewhat improved economy in the U.S. has led Macroeconomic Advisers to up their Q4 GDP forecast to 3.2%, and for Merrill Lynch to up their Q4 forecast to 3.0%. From Neil Irwin at the WaPo:

Putting all the recent evidence together, forecasting firm Macroeconomic Advisers projects that the economy will have grown at a 3.2 percent annual rate in the final three months of 2011 ...
And from Bloomberg (ht sum luk):
Economists at JPMorgan Chase & Co. (JPM) in New York now see gross domestic product rising 3 percent in the final quarter, up from a previous prediction of 2.5 percent. Macroeconomic Advisers in St. Louis increased its forecast to 3.2 percent from 2.9 percent at the start of November, while New York-based Morgan Stanley & Co. boosted its outlook to 3.5 percent from 3 percent.
That is still sluggish growth with all the slack in the system, but an improvement over Q3 and the event driven weakness earlier this year.

Here are a few indicators of credit stress:

Ted SpreadHere is a screen shot of the TED spread from Bloomberg.

The TED spread is at 0.49, and has been rising recently (top graph). The 5 year graph shows that recent increase in comparison to the U.S. financial crisis in 2008.

Click on graph for larger image.

The peak was 4.63 on Oct 10th. A normal spread is around 0.5.

• The three month LIBOR has increased:
Data from the British Bankers' Association showed the three-month dollar London Interbank Offered Rate, or Libor, rose to 0.47944% from 0.47111% Wednesday.
The three-month LIBOR rate peaked during the crisis at 4.81875% on Oct 10, 2008. This is rising again, but still low.

• The A2P2 spread as at 0.49. This spread has increased slightly over the last few days, but far lower than the peak of the financial crisis of 5.86.

This is the spread between high and low quality 30 day nonfinancial commercial paper. Right now quality 30 day nonfinancial paper is yielding close to zero.

Two Year Swap SpreadThe two year swap spread screen shot from Bloomberg. This spread is just over 51.

This spread peaked at near 165 in early October 2008.

By these indicators, credit stress is rising, but it is still very low compared to the levels reached in September 2008.