Crisis Indicators Continue to Cool

Apr.23.08 | About: iShares National (MUB)

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 (NYSEARCA: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.