Not that this will have an immediate impact on the market - good or bad - but since we opened this can of worms a few months ago, we feel it’s important to monitor the ongoing health of the lending market as measured by the TED Spread and the LIBOR-OIS Spread.

For the complete explanation of the Ted Spread and what it tells us, here’s the original (and thorough) explanation. The short explanation is, the lower the better - a low TED Spread should indicate plenty if liquidity within the credit market. The spread measures the lending market’s overall perceived risk of just being in the lending business.

The chart below tells the story. As it stands right them the TED Spread is at 22.07 basis points… pretty low. In fact, that’s roughly the average score during the years 2005 and 2006, when the real estate market was going strong.

Bottom line? This tells us that banks can indeed get the money to loan you if they want to bother, though bear in mind this doesn’t necessarily mean they’ll lend indiscriminately like they did in 2005 and 2006. It just menas they can afford to do so profitably.

As for the LIBOR-OIS Spread, it’s encouraging, though not as encouraging as the TED Spread.

Here’s the full-blown explanation of the LIBOR-OIS Spread. The condensed version is that again, lower is better. The LIBOR-OIS spread is the perceived (though generally accurate) indication of the availability of funds available for short-term loans.

Anyway, the LIBOR-OIS Spread is currently holding at 0.1685 points. That’s much healthier than the reading of anywhere from 1.0 to 3.0 we saw in the fall of last year, but still doesn’t match the 0.05 to 0.10 levels we saw in 2005 and 2006. Bear in mind that the LIBOR-OIS Spread may never return to those levels.

The bigger massage is - and as we said back on the 10th - things are indeed getting better for the economy. It’s slow, but it would be foolish to deny the evidence. That’s a bigger picture call though, and won’t prevent a normal market correction … like the one it seems we’re headed into.

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