Since the TED spread’s peak of 4.65% on October 10, the measure eased to 1.75%, but has since worsened to 2.10%.


Click to enlarge
Source: Fullermoney

The difference between the LIBOR rate and the overnight index swap (OIS) rate is another measure of credit market stress.

When the LIBOR-OIS spread is increasing, it indicates that banks believe the other banks they are lending to have a higher risk of defaulting on the loans so they are charging a higher interest rate to offset this risk. The opposite applies to a narrowing LIBOR-OIS spread.

The movement in the LIBOR-OIS spread over the past few weeks is similar to the TED spread, and shows that credit markets are still not functioning smoothly.


Click to enlarge
Source: Fullermoney

As far as commercial paper is concerned, the A2P2 spread measures the difference between A2/P2 (low quality) and AA (high quality) 30-day non-financial commercial paper. Although the spread has declined from a record high of 4.83% to 4.27%, it remains at an elevated (i.e. crisis) level.


Source: Federal Reserve Release – Commercial Paper

Similarly, junk bond yields continue to scale new highs as shown by the Merrill Lynch US High Yield Index.


Source: Merrill Lynch Global Index System

Another indicator worth keeping an eye on is the Barron’s Confidence Index. This Index is calculated by dividing the average yield on high-grade bonds by the average yield on intermediate-grade bonds. The discrepancy between the yields is indicative of investor confidence. A declining ration indicates that investors are demanding a lower premium in yield for increased risk, showing waning confidence in the economy.


Source: I-Net Bridge

According to Markit, the cost of buying credit insurance for US and European companies eased somewhat over the past week as shown by the narrower spreads (basis points) for the following credit indices:
 

• CDX (North American, investment grade) Index: down from 267 to 233
• CDX (North America, high yield) Index: down from 1,546 to 1,376
  
  
• Markit iTraxx Europe Index: down from 183 to 163
• Markit iTraxx Europe Crossover Index: down from 915 to 869
  
  
• Markit iTraxx Japan Index: down from 350 to 320
• Markit iTraxx Asia ex Japan IG Index: down from 452 to 360
• Markit iTraxx Asia ex Japan HY Index: down from 1,375 to 1,218