Despite the superficially rapid and significant rebound that has taken place in equity markets over recent months, the equity markets are pretty much flat relative to where they started 2009, as the (unfortunately messy) chart below shows. The chart presents some key financial market indicators indexed to where they started 2009. As such, the chart allows a direct comparison of the relative performance of each of the indicators. Critically, liquidity in money markets has improved significantly. The spread between three month US dollar Libor and the overnight index swap has declined by 80 per cent since the start of the year.This is continuing a trend that has been under way since the spread peaked in early October last year. Similarly, the spread between three-month bank bills and the Australian OIS has improved by more than 42 per cent since the start of the year. The Australian spread is currently around 28 basis points, after having widened in recent weeks, while the US spread is around 37 bps.The improvement since the start of the year in credit markets is also significant and credit markets have outperformed equities. The Aussie iTraxx is the best performer of the major credit indices, contracting by more than 35 per cent, while the European Main and the US CDX indices have contracted by 33 per cent and 31 per cent, respectively. That conditions in money markets have improved ahead of conditions in credit markets is to be expected. There must be available and consistent liquidity before credit conditions can improve, and this will ultimately flow through to equity markets. We note that the VIX has improved by 31 per cent since the start of the year.Finally if further evidence of improving conditions is required, the US Treasury sold US$104 billion of bonds in three tranches last week. Despite fears to the contrary, the bonds were quickly snapped up with the US$40 billion, two year, tranche being oversubscribed by nearly 3.2 times and yields falling steadily along the curve over the course of the week. Also, Citigroup sold US$5 billion of government guaranteed bonds on Thursday. The volume of bonds sold is not the surprising aspect of this transaction but the credit spreads achieved is. The multi-tranche deal included two- and three-year FRNs priced at Libor flat and Libor plus 5 bps, respectively.