The credit markets are still under considerable pressure, though investor confidence in corporate debt seems to be on the rebound. Over the past week, the Federal Reserve made another attempt at reviving confidence among borrowers and lenders to thaw the credit freeze. On the back of the announced TSLF plan and 75bp rate cut, policy makers offered their first $50 billion liquidity injection into the market and expanded the range of acceptable collateral for the auctions. In addition to AAA rated commercial mortgages, the Fed has said it will now accept bundled mortgage debt (what many consider to be the bane of the credit market). However, while risk premium in insuring corporate debt has eased on these efforts; demand for short-term, comparatively risk free paper has yet to respond significantly.
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| Credit Market | Last Week | Current | Change | % Change | Outlook * |
| DJ Credit Default Swaps | 160.9067 | 130.9688 | -29.9379 | -18.61% | Improving |
| 10 Year Junk-Bond Spread | 658 | 663 | 4.921 | 0.75% | Deteriorating |
| Credit Card Delinquencies | 4.09 | 4.11 | 0.02 | 0.02% | Deteriorating |
| Mortgage Delinquencies | 5.59 | 5.82 | 0.23 | 0.23% | Deteriorating |
| Stock Market | Last Week | Current | Change | % Change | Outlook |
| Dow Jones Industrial Average | 11972.25 | 12532.6 | 560.35 | 4.68% | Improving |
| Dow Jones Real Estate Index | 238.79 | 264.89 | 26.1 | 10.93% | Improving |
| Dow Jones Financial Index | 467.26 | 540.64 | 73.38 | 15.70% | Improving |
| Dow Jones Retail Index | 98.31 | 109.17 | 10.86 | 11.05% | Improving |
| S&P Volatility | 32.24 | 25.72 | -6.52 | -6.52% | Improving |
| Economic Indicators | Previous | Current | Change | % Change | Outlook |
| Mortgage Applications | -22.6 | 48.1 | 70.7 | 70.70% | Improving |
| Existing Home Sales | 4.89 | 5.03 | 0.14 | 2.86% | Improving |
| Personal Spending | 0.3 | 0.4 | 0.1 | 0.10% | Improving |
| Personal Income | 0.5 | 0.3 | -0.2 | -0.20% | Deteriorating |
| PCE | 3.6 | 3.7 | 0.1 | 0.10% | Improving |
| Initial Jobless Claims | 358 | 378 | 20 | 5.59% | Improving |
support a rate hike. The opposite stands for a deteriorating outlook.
CREDIT MARKET: HOW IS IT DOING?
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A DEEPER LOOK INTO THE CHANGES THIS WEEK:
| The announcement that the Fed would accept a broader range of assets as collateral for its regular auctions played a significant role in restoring confidence in firms that were holding considerable sums of debt that is still difficult to price in the market. In response to this, the cost of default swaps plunged nearly 20%. At the same time, the market realized this modification wouldn’t secure all corporate debt, leaving risk premiums to grow even higher. | Demand for short-term paper cooled somewhat last week in response to the Fed’s assurances on liquidity, though rates on money market instruments have yet to rebound. The risk-free T-bill rate slipped to its lowest level since 1954 through last Friday, while the three-month Libor slipped to a new three-year low. The Fed will no doubt monitor rates on these instruments to gauge the effectiveness of their efforts in the weeks ahead. |
STOCK MARKET: HOW IS IT DOING?
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A DEEPER LOOK INTO THE CHANGES THIS WEEK:
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U.S. CONSUMER: HOW ARE THEY DOING?
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A DEEPER LOOK INTO THE CHANGES THIS WEEK:
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Written by John Kicklighter, Currency Analyst for DailyFX.com
To contact John about this or other articles he has authored, you can email him at [email protected]
