Credit Spreads

A quick look at the credit mkts from the St. Louis Fed page:

Feb. 1 /2008: Fed funds: 3.50 April 25 /2008: 2.25
2 yr Int. Rate Swap 2.88 3.08
Corp Aaa bonds 5.38 5.56
Corp Baa bonds 6.63 6.96
5 yr UST 2.84 2.96
10 yr UST 3.67 3.75

So despite a 125 BP decrease in Fed Funds, the credit mkts actually have higher yields. That is bad for borrowers and good for lenders. The steep yield curve and wider credit spreads will help the financials rebuild their balance sheets over time. But that only applies to new loans! Existing loans are an anchor to earnings as they get marked down to current market levels. When the writedowns end and the bank start lending again (or corps start borrowing), the financials will scream. Is the worst over for the financials? Not sure, but I expect one and maybe 2 more legs down as the expectations for an end to the real estate bubble bursting are quashed.