Good News Friday - September 11, 2009

Looking Back

Next Tuesday will mark the one-year anniversary of Lehman Brothers’ bankruptcy, which kicked off a global credit crisis and “the worst recession since the Great Depression.” As the crisis unfolded, one of the most closely watched indicators was the TED spread, a measure of risk-aversion in the credit markets. This is the difference between interest rates on 3-month Treasury bills (“T”) and the 3-month Eurodollar futures contract (“ED”) as represented by the London interbank offered rate (Libor). Libor is a widely used index for lending between banks and for business and mortgage loans. As the crisis deepened, investors fled to the safety of T-bills, driving prices up and interest rates down, while Libor spiked as banks posted prohibitively high lending rates in order to conserve cash. The spread, normally around 50 basis points, soared to 464 basis points on October 10th, a sign of the panic that gripped global financial markets. Yesterday, the TED spread was a razor-thin 16 basis points, as clear a sign as any that stability has returned to credit markets despite the well-publicized problems in the commercial real estate sector. Click here to view an interactive chart of the TED spread from Bloomberg.

International trade is the latest indicator to signal that an economic recovery is at hand. Exports increased by 2.2 percent in July while imports, fueled by vehicle demand from the cash-for-clunkers program, soared by a record 4.7 percent. The global economy is growing again.

Have a great weekend.

Robert Bach
SVP, Chief Economist
Grubb & Ellis
312.698.6754