The 10-Year Treasury Note yield is at 3.14%.
The effective Fed Funds rate was at 0.38% (yesterday). At some point, I'd like to see the effective Fed funds rate close to the target rate (currently 1.0%) and the 3 month yield within 25 bps of the target rate.
But for now, the Fed appears engaged in quantitative easing.
The TED spread is stuck above 2.0, and still too high. The peak was 4.63 on Oct 10th. I'd like to see the spread move back down to 1.0 or lower. A normal spread is around 0.5.
This graph shows the spread between 30 year Moody's Aaa and Baa rated bonds and the 30 year treasury. The Moody's data is from the St. Louis Fed
There are periods when the spread increases because of concerns of higher default rates (like in the severe recession of the early '80s), but the recent spread is unprecedented. Worse
The Federal Reserve assets increased $139 billion last week to $2.214 trillion.
This is the spread between high and low quality 30 day nonfinancial commercial paper.
The Fed is buying higher quality commercial paper (CP) and this is pushing down the yield on this paper (0.43% yesterday!) - and increasing the spread between AA and A2/P2 CP. So this indicator has been a little misleading. Also the recession is creating concern for lower rated paper. Still, if the credit crisis eases, I'd expect a significant decline in this spread.
Note:on quantitative easing, see Bernanke's paper from 2004: Conducting Monetary Policy at Very Low Short-Term Interest Rates One thing is clear - the target Fed funds rate is pretty much meaningless right now.