NEW YORK — The government’s efforts to crank open the credit markets have led to some mild improvements in lending rates and Treasury-bill yields. But it will probably take months, and perhaps a few years, before lending returns to healthier levels.
It was clear Tuesday that there is still plenty of fear in the lending business. One indicator: The difference between the rate at which banks lend to other banks and the rate at which they buy U.S. government debt remains near a 25-year high.
But analysts believe that as long as conditions keep improving, the economy should be able to grow.
“I don’t think we need to have credit conditions come back to normal before we see signs that the economy is recovering,” said Bernard Baumohl, chief global economist at the Economic Outlook Group.
The problem is that the health of the economy and the credit markets is intertwined. The health of the economy relies on credit, and the willingness to lend depends on the economic outlook.
There’s no specific piece of data that will signal that things are significantly better in the credit markets. Rather, investors will need to see prolonged, steady improvement on various fronts — bank-to-bank lending, lending to businesses and consumers, and investment in corporate debt such as commercial paper — to get a sense that credit has returned to a healthier state.
Confidence in the lending business grew a bit Tuesday as the U.S. government said it would spend $250 billion of its $700 billion bailout package on buying stock in nine major banks, after European governments announced a similar move Monday to recapitalize their banks.
The actions helped bank-to-bank lending rates tick lower and bring some optimism back to the stock market.
The London interbank rate, the key lending rate known as LIBOR, has been inching lower. LIBOR for three-month dollar loans fell to 4.64 percent from 4.75 percent, after a 0.07 percentage point dip Monday; last Wednesday, when the financial markets were in turmoil, LIBOR rose to 5.38 percent, and a month ago, it was below 3 percent. And investors were betting Tuesday that LIBOR would fall again today, according to Miller Tabak & Co. analyst Tony Crescenzi.
LIBOR is important because many consumer loans, including about half of all adjustable-rate mortgages, are tied to it.
