I was talking to somebody about the lack of credit (credit freeze) in the market and he disagreed with me and mentioned: “…it’s not reflected in CDS/Libor rate…” How does looking at those numbers tell you whether or not credit is frozen or being granted to some? Also, where can one find CDS rates (widen/narrower) online?
All I know is the TED spread, although, it has recovered over the last month or two, is still at extreme highs and is edging up everyday. the TED is the difference btw a 3 month treasury and the 3 month LIBOR. Shows health of lending between banks. http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP:IND I don’t think he knows what he’s talking about. CDS=credit default swap, which have been increasing dramatically all this year and especially lately, while the LIBOR is high, but hasn’t shown quite as much of an increase. Wouldn’t this mean that Credit default risk is up and LIBOR is not up as much, meaning much more risk, meaning much tighter credit, meaning frozen credit markets.
Even if the CDS/LIBOR was 1 throughout history, there can be different levels of credit risk throughout. Don’t they indicate the same thing? larger CDS means higher risk of default (higher risk) larger LIBOR means higher risk of lending (higher risk) dividing risk by risk equals 1 right, at all points in time?
Thanks Matt! I will have him explain again…
Anyway, it’s not like there is a “CDS rate” like there is a LIBOR rate.
I see–it’s simple subtraction!
CORRECTION: The TED is simple subtraction. So where would one go to find out the current CDS rates?!?!? How would one know if the CDS rate for Co. ABC is increasing or decreasing?
I don’t know. I hear those with a Bloomberg terminal have access to that kind of info.
Bloomerg terminals have the info. I think Bloomberg gets the data from several providers such as CMA Datavision.
Major current “stress” metrics: Libor/OIS spread (difference between interbank risky lending and risk free swaps) CDS spreads (Crossover, HiVol, Investment Grade) plus oldies but goodies - TED spread etc
You can find index spread data here: http://www.markit.com/information/products/category/indices/cdx.html If you fish around, you can find the 3 month charts for the IG and HY indices. Your friend is right that LIBOR is low, but CDS spreads over LIBOR continue to widen. So, all-in borrowing costs are still high. You are essentially seeing no high yield issuance, and only limited IG issuance. Unlike the equity market, companies have to access the debt market to tackle rolling maturities. Equity guys keep talking about the improving credit markets, and while low LIBOR helps, it is no shorthand for the overall health of credit.