While the New York Times article points out that yields of Treasurys on the long end have stubbornly increased — what might be deemed as “the market fighting the Fed,” classically a no-no — what has become of more utilitarian credit spreads? The answer is, they’ve improved.

Since QE2 began earlier this month, both the Libor-OIS and the TED spreads have tightened. The Libor-OIS spread, which calculates the difference between the three-month Libor rate and the anticipated average of the federal funds rate, has tightened about 6.9% since Nov. 1 to 10.14 basis points. But that’s really nothing new. Libor-OIS has been bouncing from 10 to not higher than 12 since the mini-credit crisis over the summer ended in mid-August.

The TED, which measures the difference between three-month Treasurys and the three-month Libor rate, has shown even more bend since QE2 went live. The TED is about 13.5% tighter to close yesterday at about 15.97 basis points. The TED has taken a wilder ride since mid August, dropping to as low as 13.48 basis points in late September, only to rise to 18.25 just days later.

TED SPREAD

It is important to note that these gains in spreads are coming at the short end of the yield curve, not the long side. Does this mean Ben deserves a pat on the back? It’s probably to soon to give him that. Let’s at least agree that there is no need to slap him upside the head as of now.