After a two-year hiatus, we are going to fire up the old Sober Look again. The goal this time around is to have less frequent postings but with more than one contributor. With all the macro fun that’s been shaking up the financial markets and all the hype that surrounds it, the time is right.
We start off with a simple chart of the USD 2-year swap spread. For those who are not familiar with the term, it’s the fixed rate on the current 2-year fixed-for-floating swap vs. the yield on a 2-year treasury note. This is basically the expectation of future LIBOR spread to treasuries. Today we’ve hit a new recent high, indicating concern about the health of the interbank lending markets. This is one of the key indicators of stress in the overall financial system. 47bp is no big deal relative to 08, but it’s something to watch closely.