Credit Crisis Indicators

  • From Calculated Risk
  • TED Spread
  • The TED spread is at 0.99, sharply lower. (improved)The TED spread was stuck above 2.0 for some time. The peak was 4.63 on Oct 10th. The TED spread has finally moved below 1.0, although a normal spread is around 0.5.
  • The three month LIBOR has decreased to 1.109%. The three-month LIBOR rate peaked (for this cycle) at 4.81875% on Oct. 10. (improved) Imagine all those adjusted rate mortgage loans tied to treasuries or even the 3 month LIBOR? The rates are looking pretty good!A2P2 Spread
  • The A2P2 spread as at 2.23. This spread has seen a huge decline in 2009. This is far lower than the record (for this cycle) of 5.86 after Thanksgiving, but still way too high. (improved).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. If the credit crisis eases, I’d expect a significant further decline in this spread – although this is good progress.
    Two Year Swap
  • The two year swap spread from Bloomberg: 52.25. (improved). This spread peaked at near 165 in early October, so there has been significant progress, and the swap hasn’t been this low since mid-2007.
  • By these indicators, the Fed is making progress.

  • The two year swap spread from Bloomberg: 77.00. (Improved). This spread peaked at near 165 in early October, so there has been significant progress, and the swap is finally well below100.
  • It appears the Fed is finally getting some rates down – but clearly the 3-month treasury yield at zero is not a sign of a healthy economy

    From Krugman:

    That’s Zero Interest Rate Policy — which is now, in the wake of this morning’s terrible employment report, inevitable. Yes, we’re Japan.

    Add to this the news of a retail sales collapse, and we’re looking grim, grim, grim.

    Monetary policy obviously isn’t enough. It’s time to raise Keynes: we need big fiscal stimulus, now now now.

    Any way we can get current management at Treasury to take early retirement, and get the new guys in right away?

    Add: The unemployment rate has now risen more than 2 percentage points from its pre-recession low. In 1990-1992 the unemployment rate rose 2.6 percentage points. Given what’s happening to retail sales, manufacturing, and so on, it’s now a certainty that unemployment has a lot further to rise. So the “worst recession in 25 years” thing is now baked in. The only question is whether we hit “worst slump since the Great Depression” territory.

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