The TED Spread is coming down

Despite stock markets being lower the last few days, there are some bright spots in he macro picture. On Feb 24th, I mentioned that risk in the markets was high as suggested by the Ted spread. (The TED spread measures the gap between the interest rate at which the U.S. Treasury funds itself (3-month T-bills) and the interest rate at which banks lend to each other (3-month LIBOR: London Interbank Offered Rate).)

Over the last few weeks, the TED spread has been coming down, signaling an easing in fear in the market. In fact, the Spread hit its lowest level since February at 111 basis points (one basis point equals 1/100 of one percent).

We should follow this measure closely as it has relevance regarding the central banks’ efforts to ease the credit crunch. Apparently, their liquidity is having a positive effect on banks’ willingness to lend to one another.

Note: I now have a link on the sidebar to Bloomberg’s Ted Spread Chart, which takes you here. I also have a link on the whole credit crisis timeline here.

See also:
Ted Spread is at a 9-month low
The TED Spread