The Creeping Terror

OilPrice.com ^ | 04/16/2010 | Dave Forest

[bananaman22]

Over the last few days I’ve noticed one significant thing. Creeping yields on U.S. commercial paper.

Prior to the financial crisis in 2008, rising yields on commercial paper were one of the first signs of trouble in the credit markets. Holders sold off paper to reduce their exposure to troubled businesses. As prices for commercial paper dropped, yields spiked.

Over the last year, yields have declined as buyers returned to the market. Everything seemed to be good again.

But there has been a notable rise in yields on longer-dated paper over the last month. Yields on 90 Day AA Financial paper were holding steady around 0.2% for most of the last six months. Since early March, they've been creeping up to now stand near 0.3%.

US Commercial Paper Rates – 90 Day AA Financial Discount Rate – Chart Full article at: Commercial Paper

[mlocher]

But the fact that yields on non-financial paper are also rising suggests this is something more systemic. Risk aversion is rising in all sectors.

I am noticing this in US Treasuries too. However, the yields are not rising at an alarming rate. In fact, I thought they would be rising much faster, but because of the market liquidity, they are not.

The key take away for me is that as long as there is risk aversion in the market, investors are not going to put a lot of money into job creating small businesses. The recovery is not happening.....

[fso301]

Possibly due to European economic effects of the Icelandic volcano?