Jul 9, 2019

Perceived credit risk for the U.S. at lowest level in 40 years

Dion Rabouin, author of Markets
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Data: Federal Reserve Bank of St. Louis, FactSet; Chart: Axios Visuals

The TED spread, a measure of the perceived credit risk in the U.S. economy, matched its lowest level in at least 40 years last week.

The breakdown: As Ken Faulkenberry at Arbor Investment Planner explains it: "Comparing the risk free rate [of 3-month U.S. Treasuries] to LIBOR provides an indication of the risk the global markets perceive in the global banking system."

  • "A rising or high TED spread will often precede a downturn in the stock market because it indicates increasing risk of bank defaults and economic instability. A falling or low TED spread would indicate low risk of bank defaults and economic stability."

How it works: The metric tracks the 3-month U.S. Treasury bill yield and the value of the 3-month eurodollar futures contract, or 3-month LIBOR. ("T" for Treasury bill and "ED" for eurodollar.) It essentially measures the level of trust between banks or how creditworthy they deem one another.

Go deeper ... Warning: Signs of credit crisis grow

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In photos: Protests over George Floyd's death grip Minneapolis

The Third Police Precinct burns in Minneapolis on Thursday night. Photo: Stephen Maturen/Getty Images

Demonstrators demanding justice burned a Minneapolis police station and took control of the streets around it last night, heaving wood onto the flames, kicking down poles with surveillance cameras and torching surrounding stores.

What's happening: The crowd was protesting the death of George Floyd, an unarmed black man whose life was snuffed out Tuesday by a white Minneapolis police officer who kneeled on his neck for about eight minutes.

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European soccer's push to return

A Bundesliga match between Borussia Dortmund and Bayern Munchen in an empty stadium. Photo: Alexandre Simoes/Borussia Dortmund via Getty Images

European soccer made a splash Thursday, with two of its biggest leagues announcing official return-to-play dates in June.

Why it matters: Soccer is the world's most popular sport, so watching its return through the lens of various leagues, countries and cultures — all of which have been uniquely impacted by the coronavirus pandemic — is illuminating.

The corporate bankruptcy wave has just gotten started

Illustration: Sarah Grillo/Axios

Even with trillions of dollars in loans, grants and government support — with markets having absorbed a record $1.22 trillion of corporate debt in just five months — a slew of companies are defaulting on their loans and filing for bankruptcy in what is expected to be a record wave of insolvencies and defaults.

Why it matters: While equity and debt markets have rallied thanks to massive interventions from the Federal Reserve and Congress and excitement about the removal of lockdown orders, the real economy is quietly buckling, with many companies threatened by issues that predate the coronavirus pandemic.