Crisis Indicators: Now vs. March Lows

Below we highlight some of the widely followed indicators to see how markets are weathering the credit crisis.  The first chart below highlights an index that measures credit default risk for a number of investment grade corporate bonds in the US.  As shown, default risk has dropped dramatically since the March lows in equity markets (red dot), but it still remains elevated.  Even with the drop in Financial share prices back to their March lows recently, default risk hasn't gotten anywhere near its highs just a couple of months ago. 

Another measure that the Fed is definitely following is the 30-year fixed mortgage rate.  In the second chart, we highlight Bankrate.com's national average 30-year fixed mortgage rate over the last year and a half.  This rate needs to remain low in order to boost the struggling housing market, but unfortunately it hasn't.  It's now much higher than it was back in March, and slightly higher than it was before the Fed even starting cutting rates last August!

Finally, the last chart measures the price of MUB -- an ETF that tracks an S&P index of national municipal bonds.  This ETF fell sharply back in February when the auction rate securities markets froze up.  After rallying significantly off its lows, it has headed lower from its May 20th peak and is now back below $100.  While default risk has definitely settled down in recent months, it's somewhat disconcerting to see mortgage rates spiking and muni bonds falling.