What is TED SPREAD? why bother?

Ted Spread is a measure of 'liquidity' in the US economy. The higher the value of ted spread, the lower are the banks willing to lend to each other. High value of Ted spread is an indicator of fear of defaults, also called as counter party risks. Typical value of Ted spread is between 0.5% to 1%.

Currently, as of today the value of Ted spread is near 3.2% ! The only other time when Ted spread was above 3% was after the 1987 stock market crash. The above graph is from Econbrowser based on data from Bloomberg. It shows that the liquidity crisis is now much worse than during the first phase of subprime crisis 2007-2008. I remember reading opinions of "experts" around or before May 2008 sounding like "worst of credit crisis may be over". Well, the above graph also shows that either experts tend to be too optimistic, or the media tends to be attracted more by the optimistic experts.

Since US economy is one of the largest in the world (at least as of today :) ) and this current credit crunch is by definition is all about lack of liquidity, we in India and the rest of the world need to worry about Ted spread.

You can find Latest value of Ted spread here.

Ted spread is defined to be the difference between 3-month Treasury bills (or T-bills) and 3-month LIBOR (London Inter Banking Offered Rate). To read more about "how is ted spread calculated?", "what is LIBOR?", "What is T-Bill?", etc. read the Wikipedia article on TED SPREAD.

Related posts:

Sep 29, 2008

Custom Search

  © 2008 http://niftyprediction.blogspot.com