mplaut

Credit Crisis Watch: Are the Markets Thawing?

In my opinion, measures that rely on US Treasury rates as the basis of a "risk free" investment are distorted by the artificially low rates of US Treasury paper in recent months. The "flight" to safety has driven the rates to artificially low levels that do not represent the true rate of a risk free investment but the rate that a panic stricken investor is willing to accept for a risk free investment.

LIBOR rates do not include this element of panic and are thus higher, so the spread appears to be wider than it really is.

It may well be at normal levels already.

That is, it may not be the LIBOR rate that is unusually high, but the US Treasury rates that are artificially low.

JMO