The TED spread through the roof

| 17 September 2008 08:31

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.

avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill 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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