TED Spread Shrinking

December 24, 2008 at 1:16 am Leave a comment

TED spread is the difference in interest rates between interbank loans (LIBOR) and U.S. treasury bills. It is a common measure of availability of credit, or fear in credit markets; you can also think of it as a gauge of risk of lending to banks vs. low or near-zero risk U.S. treasury obligations.  Most of us probably haven’t even heard of this term, but became painfully aware of it as the credit meltdown unfolded.

TED spread spent most of the last decade in the range between 0 and 1%; but during the height of the crisis in October-November, it shot to nearly 5%, as the chart on the left indicates.

But since then, it has declined steadily to  1-2% range.  While the spread is still relatively high, that is an encouraging sign that credit markets are returning to normal.  You can monitor current TED spread at Bloomberg site here.

Entry filed under: Market Conditions.

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Leon Shirman's long-term investment philosophy is summarized in his book, “42 Rules for Sensible Investing”, also available from Amazon.


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