by Calculated Risk on 11/05/2008 12:01:00 PM
Wednesday, November 05, 2008
Credit Crisis Indicators: More Progress
The London interbank offered rate, or Libor, for three- month loans fell to 2.51 percent today, from 4.82 percent on Oct. 10.The three-month LIBOR was at 2.71 yesterday. The rate peaked at 4.81875% on Oct. 10.
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 (0.23% yesterday), so maybe the 3 month yield of 0.44% is somewhat in the right range.
It is nice to be back near 2.0, and I'd like to see the spread move back down to 1.0 or lower.
Here is a list of SFP sales. No announcement today from the Treasury ... no progress.
Note: Once a week I will include the Fed balance sheet assets. If this starts to decline that would be a positive sign.
The Fed is buying higher quality commercial paper (CP) and this is pushing down the yield on this paper (0.97% on Friday!) - and increasing the spread between AA and A2/P2 CP. So this indicator has been a little misleading. But it now sounds like the Fed might intervene in other companies and just the talk of possible Fed action is probably pushing down the A2/P2 rates. If the credit crisis eases, I'd expect a significant decline in this spread.
The LIBOR is down, the TED spread is off again, the A2/P2 spread declined - so there is more progress.