Chart: TED Spread and LIBOR-OIS
Here's a timely update on a couple of short-term funding pressure gauges - I noticed the movement in these indicators as I was updating the latest "Global Cross Asset Market Monitor". In short, these are both measures of funding pressures in the financial markets, and are seen as leading indicators of financial stress. After sharply rising earlier this year, both measures have peaked, but that may not be the end and that may not necessarily be a bad thing as such. A big driver of the increase has been policy: the Fed is running down its balance sheet and hiking rates, the US government has changed tax treatment for multinationals, and the treasury has been more active in the short term funding markets. The Fed tightening reflects a strong economy, and the fact that these are all basically policy/government driven means its not necessarily a credit crunch or signs of worsening credit quality or funding stress. Yet these factors are unlikely to go away in the near term, so as I mentioned, it's a peak, but perhaps not the top.
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