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Friday, October 31, 2008

Credit Crisis Indicators: Some Progress

by Calculated Risk on 10/31/2008 02:17:00 PM

  • LIBOR declined today from Bloomberg:
    The London interbank offered rate, or Libor, for three month loans in dollars slid 0.16 point to 3.03 percent, the 15th consecutive drop, according to the British Bankers' Association.
    The rate peaked at 4.81875% on Oct. 10.

  • The yield on 3 month treasuries declined slightly to 0.42% from 0.48%. (slightly worse)

    Usually the 3 month trades below the target Fed Funds rate by around 25 bps, so this is too low with the Fed funds rate at 1.0%. However, the effective Fed Funds rate is even lower (0.36% yesterday), so a 3 month yield of 0.42% is in the right range. I'd like to see the effective funds rate closer to the target rate.

  • The TED spread: 2.60, down from 2.70 (Slightly better) This is 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: 120.00 up slightly (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 at a record 4.72 up from 4.69. Worse.

    The Fed is buying higher quality commercial paper (CP) and this is pushing down the yield on this paper - and increasing the spread between AA and A2/P2 CP. So this indicator is a little misleading right now. Still, if the credit crisis eases, I'd expect a significant decline in this spread.

    The LIBOR is down and the TED spread is off a little, but the A2P2 spread is at a record high probably because of the Fed buying CP - so there is some progress.