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TED Spread
Why should I care about the TED spread?
The TED spread is important because it provides clues about the health of the credit markets and, by extension, the overall economy. The TED spread is the difference between the interest rate on three-month Treasury bills and the rate banks charge each other for three-month loans (as measured by the London Interbank Offer Rate, or LIBOR). The name comes from T-Bill and ED, the ticker symbol for the Eurodollar futures contract. The spread captures how banks feel about the financial system, and that can have crucial ramifications on your ability to borrow, as well as for the overall economy.
In good times, banks lend to each other constantly, helping money flow to businesses and consumers. Bankers ordinarily figure there’s almost no risk to this, so they charge other banks just a tad more than the going rate for T-bills. But when bankers become worried, they may demand higher rates. Credit dries up, and the economy suffers as businesses have trouble getting funding to expand and consumers can’t borrow to buy homes or make other big purchases.
In October of 2008, the TED spread spiked to its highest level ever. It has fallen considerably since then, but remains elevated. A return to normal levels will be critical for an economic recovery.
Editor's Pick
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Track TED
Here you’ll find up-to-the-minute readings of the TED spread from Bloomberg.
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Get to Know TED
The “Liborated ” blog explains more about TED and how its recent record high compares to the historical record.
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Why TED Jumped
The TED spread spiked to higher than four points last fall (half a point is more normal). Read why here (think toxic mortgages).
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TED at 1: Time to Party (Audio)
After a January decline in the TED spread, National Public Radio reporters Madeleine Brand and David Kestenbaum discuss whether that’s a reason to celebrate.
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Does TED Really Matter?
Portfolio.com columnist Felix Salmon argues that the TED spread isn’t a perfect gauge of the credit markets.
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Good News Update: TED Spread, Lending, Liquidity
As the financial media focuses on the negative news such as the unemployment rate, it's important that you know some of the positive news about the economy. by Larry Swedroe
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More Good News: Consumer Confidence, Retail Sales and the TED Spread
Many of you may be surprised to learn that when the unemployment rate is up, stocks actually do quite well. Here's why. by Larry Swedroe
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