What are we talking about?
When you hear us warning that the credit market shows signs of severe stress, what’s the index to watch? There’s no easy answer. There’s a dizzying array of constantly moving parts to the credit markets, so it’s not as simple as a minute-by-minute look at the Dow Industrials or the S&P 500.
The most commonly used reading on how tight credit has become is an index that’s been getting a lot of attention lately – the London Interbank Offered Rate, or LIBOR. This is reading remains near record highs and reflects how very leery the banks still are of lending to each other. That ultimately makes credit harder to come by (and more expensive) for the rest of us. The LIBOR is also used to reset many adjustable-rate mortgages – possibly yours.
Another indicator shows how far out of whack the difference has become between the three month T-bill and the LIBOR interest rate. It’s called the TED Spread.
You might also want to track the [yield on Treasuries](http://www.bloomberg.com/markets/rates/index.html” ). When you see the yield on government bonds going very low – or even below zero – it shows that investors are willing to make close to nothing on their money (and perhaps even end up paying the government) to keep it safe.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.