Crisis Indicators Continue to Cool

On March 27th, we posted charts of three "credit crisis" indicators highlighting that the pain was beginning to subside. We have updated these charts after about a month has passed, and they continue to show signs of relief.

The first chart below is an index that measures credit default risk for 125 investment grade companies. After peaking on March 10th, the default risk index has fallen 45% back to levels seen at the start of the year.

The second chart is an ETF that tracks the S&P National Muni Bond Index (MUB). When the auction rate securities market froze up in late February, municipal bonds cratered as tax-free yields rose above those of many taxable bonds. Since then, however, muni bonds have risen and stabilized as yield-hungry investors flocked to them.

The last chart is Bankrate's national average for 30-year fixed mortgage rates. When all is said and done, things won't get better until homes start selling again, whatever the prices might be. For buyers to buy, rates need to be attractive, and the Fed has tried their hardest to lower borrowing costs by dropping the Fed Funds Rate. Unfortunately, even as the Fed was cutting, mortgage rates actually in February and early March as banks shied away from risk. By the end of March, mortgage rates finally dropped from the low 6s to the mid-5s. Over the last week, however, rates have spiked as bonds in general have sold off.

Comments

[sivere]

The problem is the $500+trillion derivatives bubble that may pop at any time. This is all the fault of the Fed and its policies of the last 20 years (at least). As the derivative bubble was inflated the Fed stood by, even encouraged it with glee. In fact it is the fault of congress who have the constitutional responsibility to administer and maintain a currency and system of credits. Therefor, we need to

TakBackTheFed.com

We need to do it NOW. Let's not sit around and wait fo the crash, open our wallets, and pay for it (not that what is in our wallets will necassarily be woth much). Let's take action now, and save our nation!

[kingofithaki]

most derivatives are broken out over enough years for this debate to be a non event. As the dollar gets yenized and is kept down, industry will find itself quickly snapping back, to the shock of those who have done a mark twain on the industrial base of the USA. With regulators giving out 60 day fix or be fixed letters to lenders, this problem will be short lived. By March 2009 this market gets back when demografix rebalance and the cost of heating northern homes sends people to the A/C belt(cal/n.mex/ariz/te... this question will be left behind. Remember how russia was never going to recover from 1998??? look up the original estimates of cost for the S&L crisis...$500 billion...then 250 billion....then the now parroted $160 billion...sorry but the real hard cost was less than $85 billion (GAO/AIMD 96-0123 RTC Financial statement report). And we survived the great depression, which gave us the marx brothers, wc fields, the three stooges and abbott and costello...so maybe things were not as bad as the history books led us to believe...this too shall pass...the derivatives are spread out over 30-50 years, as annuity calculations for pensions and insurance policies work around future liabilities, not present short term fluctuations...the true annual exposure is more in the range of 5-7 trillion...still dangerous...but not the massive number as against the 90 trillion in US capital assets...so sit back, open up a bottle of your favorite vice and count the days till we are overworked again...