Market Distress Peaked in October 2008

 

On a daily basis, the spread of short term commercial loans peaked on Oct. 10, 2008 at an astounding 4.57%. Clearly, the problems in the subprime mortgage market had spread to virtually every nook and cranny of the financial markets.
Courtesy of The Bose Law

One way of measuring the distress in financial market is to look at the spread or difference in interest rates between the 3-month LIBOR — a market rate determined by borrowing and lending between large banks in London that is used as an index for short-term commercial loans — and the 3-month Treasury Bill.

In normal times, that spread hovers somewhere in the neighborhood of a half-percent. During times of distress, the spread widens.

For example, during the 1990-1991 recession the monthly average spread peaked at 1.3% in November 1990. In the current recession, the monthly average spread peaked at 3.37% in October 2008.

Courtesy of NAHB