Are we returning to 2008?
Credit spreads have widened out to such a degree over the last few days that I wonder whether a full-borne credit crisis might be in the works. Just when you thought it was safe to go back into the water …
The TED spread has widened 17.4% since Thursday. On March 16, the TED was at 10.5644, but it now trading at around 38.61. The LIBOR-OIS is in the 32-basis-point range today. Just last Thursday it was at 25.21.
At what point do the liquidity alarm bells need to sound? The Dow Industrials is trading down 2.69% today at 9,774.63. Spreads widening, liquidity contracting, the Dow in severe decline — sounds like 2008, no? Certainly, Europe is in the hot zone. Last week, there was already evidence of discord on the auto asset-backed securitization market, with wider spreads on $3.5 billion of issuance from Navistar Financial, Santander Consumer USA, and Nissan Motor Acceptance Corp.
This is from a WSJ article that just went live:
“There is already anecdotal evidence that banks are preferring to keep their money with central banks and this means that not only are surplus funds not released into the real economy, they are not reaching the interbank market either,” said Marc Ostwald, an interest-rate strategist with Monument Securities.
From what I understand, there are still bids out there in credit today, but the risk of a full-blown crisis is lurking. Sounds like a drill we’ve been through before.
