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Thursday, October 23, 2008

Credit Crisis Indicators: No Progress

by Calculated Risk on 10/23/2008 02:56:00 PM

From MarketWatch: European credit spreads jump to record highs

Gauges that track the risk of European and Asian corporate defaults spiked to record levels Thursday as the outlook for the global economy dimmed and emerging markets came under increased strain.
Credit-default swap indexes compiled by data provider Markit surged through previous record wide levels "amid pessimism over the economic outlook," said Markit vice president Gavan Nolan in a report.
  • The yield on 3 month treasuries: 0.94%, down slightly from 1.01% (slightly worse)

    A good sign would be if the daily volatility subsides, and the yield moves up closer to the Fed funds rate, or about 1.25%. Of course the Fed is expected to lower rates next week by anywhere from 25 bps to even 75 bps - so this might be as good as it gets for the 3 month treasury.

  • The TED spread: 2.58 up slightly from 2.50 yesterday (slightly worse)

  • The two year swap spread from Bloomberg: 117.00 up from 107.25 (slightly worse)

  • 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 new announcements today, but this will take some time. No Progress.

  • The A2P2 spread is 4.6 Wednesday, up from 4.45 for Tuesday. 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.

  • Industry contacts. I spoke with an industry contact this morning, and they still cannot obtain a loan for an acquisition. No improvement yet.

    Another disappointing day with no progress. Most indicators are slightly worse.