Huge rebound in $INDU today.
The TED spread is the difference between the interest rates on inter-bank loans and short-term U.S. government debt ("T-bills").
Initially, the TED spread was the difference between the interest rates for three-month U.S. Treasuries contracts and the three month Eurodollars contract as represented by the London Inter Bank Offered Rate (LIBOR). However, since the Chicago Mercantile Exchange dropped T-bill futures, the TED spread is now calculated as the difference between the three-month T-bill interest rate and three-month LIBOR. The TED spread is a measure of liquidity and shows the degree to which banks are willing to lend money to one another.
The TED spread is an indicator of perceived credit risk in the general economy. This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial 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. Inter-bank lenders therefore demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of default is considered to be decreasing, the TED spread decreases.[1]
TED is an acronym formed from T-Bill and ED, the ticker symbol for the Eurodollar futures contract. The size of the spread is usually denominated in basis points (bps). For example, if the T-Bill rate is 5.10% and ED trades at 5.50%, the TED spread is 40bps. The TED spread fluctuates over time but is often between 10 and 50 basis points (0.1% and 0.5%). A rising TED spread often foretells a downturn in the U.S. stock market as liquidity is withdrawn.
During 2007, the Subprime mortgage crisis ballooned the TED spread to a region of 150-200bps. On September 17, 2008, the record set after the Black Monday crash of 1987 was broken as the TED spread exceeded 300bps.[2] Some higher readings for the spread were due to inability to obtain accurate LIBOR rates in the absence of a liquid unsecured lending market.[3]
On September 29, 2008, after the bailout bill was unexpectedly voted down, the TED spread achieved a new high of just over 350bps.
But liquidity crisis remains.
Follow the link for the "Ted Spread":
http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP%3AIND
The TED spread is the difference between the interest rates on inter-bank loans and short-term U.S. government debt ("T-bills").
Initially, the TED spread was the difference between the interest rates for three-month U.S. Treasuries contracts and the three month Eurodollars contract as represented by the London Inter Bank Offered Rate (LIBOR). However, since the Chicago Mercantile Exchange dropped T-bill futures, the TED spread is now calculated as the difference between the three-month T-bill interest rate and three-month LIBOR. The TED spread is a measure of liquidity and shows the degree to which banks are willing to lend money to one another.
The TED spread is an indicator of perceived credit risk in the general economy. This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial 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. Inter-bank lenders therefore demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of default is considered to be decreasing, the TED spread decreases.[1]
TED is an acronym formed from T-Bill and ED, the ticker symbol for the Eurodollar futures contract. The size of the spread is usually denominated in basis points (bps). For example, if the T-Bill rate is 5.10% and ED trades at 5.50%, the TED spread is 40bps. The TED spread fluctuates over time but is often between 10 and 50 basis points (0.1% and 0.5%). A rising TED spread often foretells a downturn in the U.S. stock market as liquidity is withdrawn.
During 2007, the Subprime mortgage crisis ballooned the TED spread to a region of 150-200bps. On September 17, 2008, the record set after the Black Monday crash of 1987 was broken as the TED spread exceeded 300bps.[2] Some higher readings for the spread were due to inability to obtain accurate LIBOR rates in the absence of a liquid unsecured lending market.[3]
On September 29, 2008, after the bailout bill was unexpectedly voted down, the TED spread achieved a new high of just over 350bps.
But liquidity crisis remains.
Follow the link for the "Ted Spread":
http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP%3AIND
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3 comments:
Good good good......
I've been hearing a lot about this $TED spread and it's pretty new to me. How can traders use this information. Is this spread predicting a crash or what readings suggest that? Right now I see it closed at -256, is that abnormally high?
Any information is appreciated.
Zentrader.ca
I think this spread reflects the overall Panic in the markets. I am looking for a crash in the next 2 weeks. When the banks quit lending--everything dead starts floating. I used to say, "in a cesspool the larger chunks float to the top" Sorry if this is too graphic but I grew up on a small farm in Arkansas and I dug up septic tanks. Now the bigger chunks head the federal reserve and the treasury. Why is no one calling for Bernacke's scalp? The $700 billion junk mortgage bailout is the largest and worst giveaway since a corrupt Congress gave land grants to the railroad barons a century and a half ago.
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