TED spread
The TED spread (TED = English Treasury Bill Euro Dollar Difference ) is the difference between the yield on the three-month Libor and the yield on three-month Treasury Bills (T-Bills).
The TED Spread compares two interest rates on receivables that are the same in terms of term and currency and differ only in terms of the debtor: the debtor is a bank for Libor and the American state for T-Bills. Therefore, the Ted Spread measures the probability of bank insolvency.
On October 20, 1987, one day after Black Monday , the TED spread reached a record level of 300 basis points (3.0 percent). Between 1987 and 2007 the spread was mostly in the range between ten and 50 basis points (0.1 to 0.5 percent). During the financial crisis , which led to tensions in the money and credit markets, the spread in 2007 widened in the region from 150 to 200 basis points (1.5 to 2.0 percent). On September 10, 2008, the TED spread overcameat 302 basis points (3.02 percent) its all-time high from 1987, the banks therefore had to pay a risk premium for three-month deposits at a historic level. On October 10, 2008, the spread marked a new all-time high of 465 basis points (4.65 percent).
Individual evidence
- ↑ Bloomberg: Money-Market Rate Jumps, TED Spread Soars on Squeeze , September 17, 2008.
- ↑ CNN Money: Credit freeze sees small cracks , October 10, 2008.