This is a chart of 1-month Libor (interest the banks are charging each other) and 2-year Treasury bill:
The blue curve is an interest for risk-free investment into Treasuries, i.e. price of money minus risk. The orange curve is a price of money including risk. The difference between the curves is, more or less, price of the risk.
Does the current shape of the curve remind you some of the previous periods? Which one?
December 4, 2007 at 8:16 pm
I give up. How about a hint?
December 4, 2007 at 9:33 pm
me too. when was it ?
December 5, 2007 at 12:00 am
the recession at the beginning of the chart, only much worse due to the ‘j curve’ in the libor chart… i.e., 2000
December 5, 2007 at 7:56 am
looks like september of this year to me. We had the Fed cut 50 bps when the three month to o/n interbank rate widened 50 bps….we are basically in the same place now. Thus , 50 bps fed fund and 75 bps discount rate by the dec 11 meeting , if not sooner. With one month and three month libor continuing to widen , the fed cuts are being shown to be meaningless. Nonetheless , cut away they will next week.
December 5, 2007 at 10:10 am
>>Nonetheless , cut away they will next week.<>>http://www.bloomberg.com/apps/news?pid=20601087&sid=aeDwstkWfAL0&refer=home
Cutting now would suggest to the open public that the FED is in panic mode…I don’t think they will cut.
December 5, 2007 at 4:32 pm
My bet on 25bps cut. 50 points would be a panic, too dangerous to do.