SPREAD ‘EM: Praise Be Credit Prices

It just gets better and better.

Week after week credit spreads have improved, and credit costs continue to narrow, boding well for banking and the economy.

The TED spread, which measures the difference between three-month Treasurys and the three-month Libor rate, is down more than 8% today alone at 23.29, down 5.7 points — or 3.5% — since our last spread review on Aug. 7.

The Libor-OIS spread, which measures the difference between the three-month Libor rate and the anticipated average of the federal funds rate, also continues to look good, currently sitting at 20 basis points, dropping 6 basis points in just the last two weeks.

For banking, these numbers offer reasons to rejoice. Credit costs continue to modulate and that just means asset prices will benefit. The more spread troubled assets can offer compared to other credit products, the more likely they are to find buyers. Banking still needs to purge itself of troubled assets, and these credit prices help.