TED Spread

The TED spread ( TED = Treasury Bill Euro Dollar Difference) is the difference between the yield for the three- month Libor rate and the yield on U.S. three-month Treasury bills ( T-bills ).

The three-month Libor is the daily fixed reference interest rate in the interbank market. It describes the rate at which banks lend money to each other.

The TED spread is an important indicator, which indicates the direction in which changed the the banks hold liquidity. He is a barometer for the market participants' confidence in the banking system. Increases the liquidity and the supply increases in the money market, which makes the spread decreases. In contrast, improving on the spread, this is due to a decline in liquidity. Are the investors on the further development of the markets concerned, investing in Euro Dollar, stocks and funds are bought and sold government securities. The spread also increases generally with an increase in inflation.

On October 20, 1987, one day after the so-called Black Monday, the TED spread ( 3.0 percent ) reached a record high of 300 basis points. 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 widened in 2007 in the region of 150 to 200 basis points ( 1.5 to 2.0 percent). On 10 September 2008, the TED spread overcame by 302 basis points (3.02 percent) all-time high of 1987, the banks thus had three-month funds to pay a risk premium in Historical height. On 10 October 2008, the spread labeled with 465 basis points ( 4.65 percent ) an all-time high.