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Bank-to-bank lending rates eased slightly on Friday and demand for Treasury bills let up a little. That might seem minor, but in this environment it’s like a glimpse of light at the end of a very dark tunnel.
Those two factors suggest that battered banks are cautiously embracing government measures to ease the crisis gripping Wall Street, explains Mike Darda, MKM Partners chief economist.
Unfortunately that’s where the good news ends. Although that’s an improvement, it’s very small — and in fact may be insufficient, even — for credit markets to return to business as usual.
Darda says it’s entirely possible that companies who need credit the most might not be able to get it.
That's because corporate bonds are being issued at the weakest pace in a decade and it's been three weeks since a high-yield corporate bond, or junk bond, has been issued. The drought is partially due to companies sitting on the sidelines waiting for conditions to improve however, it's also because there are not enough buyers.
Why is that a problem? When companies can't get funding from the markets, they have to draw down their credit facilities with their banks — which often forces the banks to hike their borrowing rates.
As the economy weakens, the companies that are going to need funding the most desperately are the ones further down the credit quality ladder.
So what’s the bottom line? “There is improvement out there but there’s a long way to go,” Darda says.
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Trader disclosure: On Oct. 17, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Karabell Owns (AAPL), (CSCO), (GOOG), (JPM), (MS), (SLB); Finerman Owns (GS); Finerman's Firm Owns (MSFT), (NOV), (UNH), (DVN), (WLP); Finerman's Firm Owns (DNA_ Call Spreads: Finerman's Firm Is Short (IYR), (IJR), (MDY), (IWM), (SPY), (USO), (BBT), (COF); Najarian Owns (AAPL) And (AAPL) Call Spread; Najarian Owns (AMD) Puts; Najarian Owns (CHK) And Is Short (CHK) Calls; Najarian Owns (HAL) And Is Short (HAL) Calls; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (YHOO) Calls; Najarian Owns (MGM) And Is Short (MGM) Calls ; Najarian Owns (UNG); Terranova Owns (AAPL), (EXM), (FCX), (FTO), (MA), (NOV), (POT), (X), (VLO)
GE Is The Parent Company Of CNBC
Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV)
Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.; Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (CNW), (OFC), (DLM), (DRH), (DLR), (EPR), (EXR), (FL), (SLB), (LNET), (MAC), (DBC), (DBV), (SKT), (UA), (BLV), (VV), (CLB), (GWX), (IGE), (FSMXX); Virtus Investment Partners Owns Seagate Tax Refund Rights; Virtus Investment Partners Owns Seagate Technology Tax Refund Rights; Virtus Investment Partners Owns More Than 1% Of Shares Of Incitec Pivot Ltd.; Virtus Investment Partners Owns More Than 1% Of Shares Of Essex Property Trust Inc.
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