by Calculated Risk on 11/07/2008 10:34:00 AM

LIBOR declined again today, from Bloomberg:

The London interbank offered rate, or Libor, that banks say they charge one another for loans fell 10 basis points to 2.29 percent today, the lowest level since November 2004, the British Bankers' Association said. The overnight rate held at a record low of 0.33 percent and the TED spread, a gauge of bank cash availability, dropped under 200 basis points for the first time since the day before Lehman Brothers Holdings Inc. collapsed.

The three-month LIBOR was at 2.39% yesterday. The rate peaked at 4.81875% on Oct. 10. (Better)

The yield on 3 month treasuries fell to 0.303% from 0.37%. (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 (0.23% yesterday) at 0.305%. I'd like to see the effective Fed Funds rate move closer to the target rate (1.0% currently) and the three month treasury yield increase.

The TED spread: 1.98, down from 2.01 (slightly better)

The TED spread is slightly below 2.0, but still too high. The peak was 4.63 on Oct 10th. I'd like to see the spread move back down to 1.0 or lower.

The two year swap spread from Bloomberg: 107.25 down slightly from 108.75 (unchanged). This spread peaked at near 165 in early October, so there has been significant progress, and 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 from the Treasury ... (no progress).

Weekly Fed Balance Sheet.


Click on graph for larger image in new window.

The Federal Reserve assets increased $105 billion this week to $2.075 trillion. Note: the graph shows Total Factors Supplying Federal Reserve Funds and is an available series that is close to assets.

So far the Federal Reserve assets are still increasing rapidly. It will be a good sign - sometime in the future - when the Fed assets start to decline.

The A2P2 spread is up to 4.2 from 3.82 yesterday and down from 4.72 last week. (slightly worse).

This is the spread between high and low quality 30 day nonfinancial commercial paper.

The Fed is buying higher quality commercial paper (CP) and this is pushing down the yield on this paper (0.82% yesterday!) - 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 and the TED spread is off again - so there is a little more progress - however most of the progress is coming directly from Fed intervention and increases in the Fed balance sheet, so there is still a long way to go.