The TED spread through the roof

Risk in the financial markets is high. I know, that’s an obvious point. But, seriously, risk is very high. The TED spread is now at its highest since October 1987. And you remember October 1987, right?

The TED in TED spread stands for Treasury Eurodollar. The TED spread measures the gap between the interest rate at which the U.S. Treasury funds itself (3-month T-bills) and the Eurodollar interest rate at which banks lend to each other (3-month LIBOR: London Interbank Offered Rate).

When this gap is high, banks are obviously less willing to lend to one another at risk-free rates. This suggests that fear of bank failure is high. The chart below speaks for itself. I don’t foresee a crash, however.

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