Credit market

17 Sept 2008, the four-week T-bill yielded just 0.245 per cent and the three-month bill 0.06 per cent, the lowest levels since 1954. Dramatic declines in US T-bill yields underline the level of risk aversion in global financial markets, as traders around the world move their funds into risk-free US government debt

A closely watched measure of global borrowing costs made its biggest jump in nine years Wednesday 17 Sept 2008 and another lending risk gauge rose to a level not seen since Black Monday in October of 1987, as banks grew increasingly wary to lend to each other and sell-shocked investors sought refuge in safe-haven short-term Treasury bills.

The London Interbank Offered Rate, known as the Libor, measures the interest rate at which banks are willing to lend to each other overnight or for longer periods. The Libor rise is simply the result of continued concern over the health of the banking system. Banks are demanding higher rates to lend to each other.

TED - The price difference between three-month futures contracts for U.S. Treasuries and three-month contracts for Eurodollars having identical expiration months. The Ted spread can be used as an indicator of credit risk. This is because U.S. T-bills are considered risk free while the rate associated with the Eurodollar futures is thought to reflect the credit ratings of corporate borrowers. As the Ted spread increases, default risk is considered to be increasing, and investors will have a preference for safe investments. As the spread decreases, the default risk is considered to be decreasing.

The TED spread is the difference between what the Treasury pays to borrow for three months and the amount banks charge each other for loans, measured by the spread between the interest rate on a three-month U.S. Treasury bill and the three-month Libor rate.

17 Sept 2008, three-month Libor in U.S. dollars jumped 19 basis points to 3.0625% the biggest jump since September 1999. The London Interbank Offered Rate, known as the Libor, measures the interest rate at which banks are willing to lend to each other overnight or for longer periods. The Libor rise is simply the result of continued concern over the health of the banking system.

According to some estimates, loans and derivative contracts totaling roughly $150 trillion more than $20,000 for every person on Earth are indexed or tied to Libor in some way. As a result, big changes in the Libor rate have major global implications for the cost of borrowing.

The so-called TED spread widened to 302 basis points Wednesday 17 Sept 2008, that's a few ticks higher than it was on the day of the Oct. 20, 1987 stock market collapse, when it rose as high as 300 basis points. Prior to the crisis, normal is below 25 basis points for the TED spread.

CDS are a common type of derivative contract that pay out in the event of default When the difference, or spread, between rates on these contracts and rates on U.S. Treasury bonds increases, that suggests investors are willing to pay more to protect against defaults.

Gold futures jumped $70 an ounce Wednesday 17 Sept 2008, the biggest daily gain in dollar terms in more than two decades. That represents gold's biggest one-day jump in dollar terms since at least 1980, the earliest year historical data were available on the Comex. Gold futures started trading in the U.S. in 1974.