Credit markets seem to yawn amid investor worries about Greece

The recent slide in stocks has been blamed on a slowing economy and fears that Greece will soon default on its debt, potentially causing problems in other wobbly European countries which could quickly spread to the U.S.

Credit default swaps (insurance on debt) on financials have risen (IMF), and the slowing economy and a flight to quality have pushed the yield on the ten-year Treasury below 3% and the yield on the two-year note to its lowest level on record – 38 basis points. 

But a look at measures of risk in the credit markets suggest are painting a different picture – calmer waters and few fears that a jarring default might be around the corner.



The two-year interest rate swap spread on Treasuries soared during the Lehman fiasco, and once again we saw some frayed nerves when problems in Greece first surfaced a year ago.

But the latest flare-up and rating agency downgrades have caused little more than a ripple. Further, the three-month LIBOR rate is currently sitting at 25 basis points, just one tick below a record low.

Both indicators are revealing that there is ample liquidity in the financial system, and banks aren’t hoarding funds the way they did in the fall of 2008.