NYT’s Credit Crisis Indicators

The New York Times has done a great job following the troubles in the economy. Its credit crisis indicators interactive page is a handy way to keep tabs on the freezing and — let’s all hope — thawing of credit markets.

Here’s what it showed yesterday:

3-Mo Treasury Yield is RISING: 1.07%, up from nearly 0.00 in mid-September and again ten days ago. The Times explains: “Investors have taken money out of stocks, bonds and money market funds to buy safe assets, forcing the yield on short-term Treasury bills down. A lower yield indicates greater concern about the financial system.”

3-Mo Libor is FALLING: 3.83%, down from nearly 5.00% ten days ago. The Times explains: “Libor — the London Interbank Offered Rate — is what banks charge one another for short-term loans. It is the basis for many financial contracts — including home mortgages and student loans — and it is a sign of whether banks trust each other. Higher rates mean banks are less willing to lend money to one another.”

Ted Spread is NARROWING: 2.77%, down from nearly 4.60% ten days ago. The Times explains: “The difference between Treasury bills and a three-month Libor is a measure of stress in the credit markets. By historical standards, the spread has been high all year: it averaged about 25 basis points (0.25%) from 2002 to 2006. Higher spreads indicate anxiety.”

Overnight Commercial Paper rate is FALLING: 1.15%, down from nearly 4.00% at the end of September and early October. The Times explains: “Commercial paper is short-term debt issued primarily by banks and large businesses, often just for days. The rate shown here is for ‘top-tier’ companies, or those with the best credit ratings. Higher rates have made it more difficult for businesses to obtain the money they need for everyday expenses.”

High-Yield Bond yield is STILL HIGH: 20.87%, up from 10.00% last May. The Times explains: “Higher bond yields indicates less willingness to lend to businesses. Yields on junk bonds have jumped, signaling an aversion to risk.”

The thaw of credit markets is showing up in news stories, such as this one from the San Francisco Chronicle published last night:

After receiving round after round of CPR from the Federal Reserve and the Treasury Department, the financial system is beginning to breathe again.

Just two weeks ago, the wholesale credit markets in which financial institutions lend each other the funds they need for day-to-day operations were in the throes of a near-death experience. The breakdown of these vital markets posed a dire threat to the economy as financial institutions hoarded cash and cut back on loans to consumers and businesses.

But, for several days running, financial institutions have shown greater willingness to lend each other money, raising hopes that credit conditions could be starting to heal.

Conditions “are better than they were a week ago,” said Christopher Browne, a money manager with the investment firm California Investment Trust Fund Group. “We’re not there yet, but it’s a return to something a little bit more normal.”

It got to the point where every financial institution was suspect and virtually no lender was willing to extend credit. Only when the government stepped in to guarantee the loans did the flow of credit begin to get restored.

“Imagine you’re in a room with 100 people,” Browne said. “Five or six of them have a deadly disease such that if you shake hands with them you’re going to die. No one is willing to shake hands with anybody. What the government is doing is like handing out rubber gloves so people can shake again.”

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