Blogs & Comment

crossin' my fingers...

We’re not calling all-clear on markets. But we have to wonder if there isn’t a tiny ray of light working its way into the financial system. In the wake of the US plan to inject capital directly into banks–an event CB editor-in-chief Joe Chidley suggests makes banks kind of like a T-Bill–has been just the thing to get stocks up off the floor.
Yesterday the Dow made it’s biggest jump ever. And while some suggested the volume on trading was a bit slim to represent a real and solid advance, the Dow seems to have held in there today as well. And that’s good.
But the really good news is over in credit markets, where LIBOR, the interest rate banks charger each other, has dropped for the second day in a row. It’s just a couple basis points. But the decrease suggests credit markets are thawing rather than tightening. And that’s really good.
As a result, the spread between the 3-month Libor rate and the 3-month U.S. Treasury bill rate, the so-called TED spread (a good indicator of bank “trustworthiness”), has narrowed to 422 basis points, down from 459 basis points.
Normally that spread is about 25 basis points, and so the fact the spread opened to what it did is a good indicator of just how serious this credit crunch is (the spread only widened to 300 basis points around the time of the 1987 crash). Let’s hope it maintains this course. Just another 400 points to go…woohoo.