The secrecy of the non regulated shadow banking market which is larger than the regulated deposit based market makes it difficult to find real time information as to the stress within the credit markets. A few charts below do support some recent dislocations within the market while highlighting the move to safety within investment grade debt.
Commercial Paper Markets Falling
An article has been surfacing showing how the non collateralized commercial paper form of lending is now being replaced with collateralized lending. In commercial paper a debtor can borrow from a creditor based solely on their credit worthiness with no collateral pledged in case of default. Such funding is used for activities like financing inventory to accounts receivable.
With growing counterparty risk associated with the ongoing credit event it seems collateral is now being asked to be pledged to offset such perceived risk. The chart below of financial commercial paper shows a sharp drop off in rates as a sign of lack of borrowing (supply and demand).
Eurodollar Deposits Rising
Eurodollar deposits which are the basis for Libor or lending of USD based capital is showing a rather sharp jump in rates similar to May 2010 during the initial Greek financial crisis. These rates have risen while the Fed and ECB have launched swap and lending facilities to alleviate USD based funding stresses. Additionally this form of lending is not as prevalent and therefore masking the severity of interbank lending but it does highlight deterioration in that market.
Investors Avoiding Risk
Investment grade corporate debt is just 7 basis points away from a multi year low (prior low was 3.81% on November 25, 2011) as investors continue to seek the relative safety of high grade debt.
Images: Flickr (licence attribution)
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