In September, interbank credit markets flashed a quick and brief warning that something was up… and Janet folded. Three months later and following The Fed’s oddly-timed rate-hike, interbank counterparty risk – as proxied by the TED-Spread – has spiked over 45% in 2 days, the most since Sept 2008 (Lehman).
The TED Spread is the difference between the interest rates on interbank loans and on short-term U.S. government debt and as such offers a proxy for how banks themselves perceive the relative creditworthiness of the financial system. The last time TED spread was surging to this level was late 2011, as Europe’s crises was exploding.
Which makes one wonder whether the Fed rate hike was – as we detailed here –an implicit bailout for foreign (read European) banks?
But the pace of increase is extremely worrisome historically.
(h/t Brendan Ferro)
The Fed just hiked into this massive two-week surge in TED spreads; as opposed cutting by 75 bps in 2008 and unleashing more QE at Jackson Hole in 2011! That hike seems akin to what happened in Sep-08 when Lehman went Bankrupt.
US financials credit risk continues to push wider (with stocks remaining cognitively dissonant for now).
Charts: Bloomberg
With the Fed’s own National Activity Index tumbling, its own Financial Stress Index soaring, and now major concerns about the US financial system’s stability looming, one has to ask, how long before Janet unleashes the next QE?
Leave A Comment