by Calculated Risk on 1/03/2008 10:58:00 AM

From the Fed weekly report on commercial paper this morning, here is the discount rate spread:

Click on graph for larger image.

According to the Fed, the discount rate spread narrowed to 58 bps. This graph was released this morning.

Also, asset backed commercial paper (CP) increased $26.3 billion to $773.8 billion. This is the first increase since August.

This is preliminary evidence that the liquidity crisis is easing. But the solvency crisis remains. From the WSJ Economics Blog a couple of day ago: Liquidity Threat Eases; Solvency Threat Still Looms:

As 2007 winds down, the much-feared year-end liquidity crisis appears to have been averted thanks to aggressive action by central banks. ... [A]s 2008 begins, it's solvency, not liquidity, that threatens the economy and the financial system. And at the root of the solvency threat is a likely decline in housing prices that will further undermine credit quality. Making banks more confident of their own ability to raise funds is not going to resolve a generalized shrinkage of lending driven by declining collateral values. ...