Tuesday, February 3, 2009

Interesting Spreads

The followings are the spreads over 3 different periods: current, 3 months ago, and 1 year ago.

1. 3-month TED:
95pts, 268pts, 77pts;
2. 1-Month LIBOR-CD (certificate of deposit):
-46pts, 49pts, 118pts;
3. 1-Month LIBOR-CD JUMBO grade
-47pts, 48pts, 110pts;
4. 5/1year ARM-5 year CD
271pts, 222pts, 154pts;
5. 5/1year ARM-5 year CD JUMNBO grade
298pts, 219pts, 198pts;
6. 5year AAA banking and finance - 5year CD
211pts, 322pts, 61pts;
7. 5year AAA banking and finance - 5year JUMDO grade
194pts, 305pts, and 46pts.

Several observations:
1. liquidity of bank has been improved from 3 months ago.
2. borrowing from inter-banks/central banks is even more cost-effective than borrowing from clients.
3. lending money becomes a sarcity as under the banks charges a "mark-to-market" risk premium.
4. 3 months ago lending money to corporate is estimated as riskier than lending money for property. Now it is the reverse.
5. For corporate, bigger amount of loan is considered as less risky; for property, bigger amount of loan is considered as more risky.
6. From point 4 and 5, property market is walking on the edge. Any single event can be the last straw.
7. From the spreads shown, it seems like banks have not lowered the risk premiums and instead increase them. It shows that banks have not recovered and are reluctant to loan. So, in a sense, the previous stimuli plans have failed.

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