The TED spread through the roof

By Edward Harrison On Sep 17, 2008

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.

Edward Harrison 7783 posts 575 comments

Edward Harrison is a senior Editor at Bloomberg. He is also the founder of Credit Writedowns newsletter, a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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