(For November 17, 2008 Bloomberg data)
3 month bill was auctioned yesterday. The yield was 0.150%. At the secondary market, the existing bill has already had its yield dropped by 6 pts to 0.09%, another new low. Spread from FED rate is -64pts. But if FED rate drops to 0.5%, then the spread will be -14pts. If it is 0%, then the spread will be 36pts. The market speculates strongly on a cut of interest rate in 3 months to zero.
6 month bill was auctioned yesterday. The yield was 0.840%. At the secondary market, the existing bill has already had its yield dropped by 8 pts to 0.76. Spread from FED rate is 52pts.
6 month UK bond yield is 1.71% (BOE rate is 3%); 6 month Germany bond yield is 2.05% (ECB rate is 3.25%). The spread is 42pts and 85pts respectively.
USD vs EUR is 1.2643; USD vs GBP is 1.4986; USD vs JPY is 96.395. The previously weak dollar has started to rally as all countries will compete for lowering interest rate to stimulate their economies.
On the other hand, Certificates of Deposits in US remains at relatively higher yield. 6 month CD is at 3.01%; JUMBO for the same period is 3.18%. Banks are on the one hand lusting for money and willing to offer higher rate for deposit. On the other hand, banks are unwilling to lend money that are both reflected on high mortgage rate (30 year fixed 6.08%; 15 year fixed 5.76%)and high AAA banking and finance rate (5 year 6.24%; 10 year 7.70%).
The above will reflect the harsh environment of banking and finance. The cost of capital from personal accounts, particularly large deposit, is high due to loss of confidence from the clients. But, the bank in turn does not trust the corporate and demands a high cost of capital on them. Hence, the "backbone" of the business, commercial loans, will greatly diminish, on both clients and profit margin (due to narrowing risk premium). The shrinking wealth management and investment bank business will only worsen the situation. Cost cut through layoff can only be first aid. It cannot cure the situation, nor can it even just stop the worsening.
With a declining banking business and the increasing government intervention (direct "investment" on various projects), SMEs may cease the dying wave for now but in the longer term the lack of "investors" will delay the recovery (and even encourage corruption).