Credit Crisis Indicators Show Pain Beginning to Subside

Even though the market has declined over the past two days, various indicators that we follow to measure the credit crisis continue to show that the pain is beginning to subside. Last Wednesday, we highlighted that the CDX North American Investment Grade index that tracks credit default risk had just barely budged from its highs. Since last week, however, the index has continued to decline, meaning investors are less worried about credit defaults.

Fixed mortgage rates are also being followed to see if it is getting easier for potential home buyers or refinancers to get loans. As shown in the second chart below, the national average for a 30-year fixed mortgage rate has declined sharply over the past couple of weeks.

Finally, in late February, the municipal bond market was selling off sharply after auction rate securities began to fail and investor money became locked up. In the third chart below we highlight the performance of the S&P National Municipal Bond index ETF (MUB). As shown, after the panic selling that occurred in late February, the index has rallied back and remains stable.

Hopefully these indices can hold their current levels or continue to ease up.

click to enlarge

Comments

[mavericks]

We'll take any good news!! The doom & gloom crowd has gotten way too big.

[Keith - LetIt Sink]

This member of the doom & gloom crowd is making good money anticipating bad news and cover ups.

I have noticed that today's bears latch on to any individual piece of non-negative news, while 95% of the news is disastrously bad.

Good luck with your long positions.