The DIFFERENCE ('spread') between what commercial banks and the U.S. Treasury pay to borrow money for 3 months widened TODAY to 423 basis points (4.23%), the most since Bloomberg began tracking the data in 1984. For some perspective, the 3 month spread averaged 41 basis points (0.41%) in the 17 years leading to July 2007 (the approx beginning of the subprime-related 'credit crisis').
The U.S. TED spread represents the difference in Interest Rates banks charge on loans to other banks vs. the interest rates offered by U.S. government short-term debt ('T-bills')..more specifically, it is the actual numerical difference in interest rates between the 3 month Treasury bill and the 3 month LIBOR. The spread is regarded as a valueable Credit market Indicator because it reflects perceptions of how RISKY it is for banks to lend their money to other commerical banks. When the TED spread increases, that is a sign that lenders believe the risk of default on inter-bank loans (also known as counterparty risk) is increasing. When the risk of bank defaults is considered to be decreasing, the TED spread decreases. According to Wiki, a rising TED spread often foretells a downturn in the U.S. stock market, as it indicates that liquidity is being withdrawn.
* By comparison, on
* By comparison, the TED spread peaked at 160 basis points (1.6%) in 1998 during the collapse of hedge fund Long Term Capital Management.
bloomberg.com/apps/news?pid=20601109&sid=a6.wGKIe.RGg
Data Courtesy: Bloomberg + Wikipedia
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