The first figure has been strained when interbank mistrust gripped the system. Despite massive public efforts to inject tens of billions into the system, both in $ and in € (and even in coordination with other major central banks), the perceived risk premium in the interbank market pushed the spread of real money circulation rates to panic levels.
But liquidity was not flowing into the system even though official rates were buried in a matter of months, as we can see in this interactive graphic. As a result of this unprecedented lack of confidence in the system, the reaction of money was not long in coming and the flight to state quality went so far as to obtain negative yields on 3-month US Treasury bills.
This phenomenon gave great relevance to the TED spread, an indicator that reflects the credit risk of the system, as it is the difference between LIBOR and T-Bills. In other words, the difference between a risk-free investment such as Treasury bills and the credit risk between banks. Therefore, the larger this difference is, the more the system is locked in, as it needs monetary fluidity to function (represented by v in quantitative theory):
We can also mention other indicators such as the LIBOR-OIS, which is nothing more than the difference between LIBOR and Overnight Index Swap. The wider the spread, the greater the stress on the system:
As we can see in this post by The Pragmatic Capitalist, The discount requested by the banks from the miraculous window of the EDF, is moderating a lot. Here is also the graph:
So as not to tire you any more, here are the last two: The spread o the difference paid for lower grade (A2/P2) non-financial commercial paper relative to AA non-financial commercial paper; and the ratio of all paper types, including financials. If we compare this with what was happening six months ago and reported in the graphs we published in The Commercial Paper Eruption, It seems as if it has become daylight.
Today, all the indicators mentioned above, and countless other very diverse ones, indicate a clear improvement in the health of the system. We will never tire of repeating that the economic, business, labour, social, etc. crisis has only just begun. But the vital constants of the financial system are improving. And the indicators confirm this. But this melting of the System is not enough to get out of recession. It is a necessary but not a sufficient condition, and a Japanese button, of course, is proof of that.
The melting of the ice begins in this glaciation, but only that, which is not little.