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An Esoteric, but Excellent, Bit of Financial News [Updated]
The TED spread plunges
By blackhedd Posted in Economy | TED spread — Comments (9) / Email this page » / Leave a comment »
Impress your friends. Tell them that the "TED spread" dropped like a rock today, from over 200 basis points to about 150.
What the heck does that mean? "TED" is ticker-symbol shorthand for Treasury-Eurodollar. The TED spread is the difference between three-month dollar-LIBOR and the three-month US Treasury bill rate.
LIBOR is an interest rate charged by banks in London when they lend their dollar-denominated reserves to each other.
LIBOR is usually slightly higher than the risk-free interest rate of the same maturity. To compare LIBOR with the Treasury bill rate is to measure the willingness of banks to lend to each other.
The TED spread being well over 2% as it has been for weeks, indicates extreme dysfunction in the money markets. Something happened today to significantly bring the spread down. I don't know what it is yet, but if it's not just a technical blip, it's very good news.
Update: At 8am EDT on Tuesday the 25th: the TED spread is down to 144 basis points. The Fed's first auction in the new Term-Securities Lending Facility is tomorrow, and money markets are focused on that. The three-month T-bill rate is well over 1% this morning, up considerably from exceedingly low levels last week. Stock markets are up overseas and will open up in New York.
In short, the Bear Stearns fever may be breaking. You can start breathing again.
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An Esoteric, but Excellent, Bit of Financial News [Updated] 9 Comments (0 topical, 9 editorial, 0 hidden) Post a comment »
I think this is more about credit than exchange rates? (nt)
by Neil Stevens
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"If we want to take this party back, and I think we can someday, let’s get to work." – Barry Goldwater
...a week ago.
My interpretation is that the dollar's strength is coming from a perception that the Federal Reserve is nearly finished cutting interest rates.
The action in the money markets is all about how reluctant people are to lend money to each other. If they don't, it puts huge downward pressure on real economic activity. That's why geeks like me worry about this.
bank bailout. Any ideas what might have lead to the change?
...pretty closely. If you look at a twelve-month chart, you'll see a spike in October, another one in December, and another one now. If it comes down, that leads to the hope that we might finally be coming out of the credit crunch.
Until it erupts again.
There have been a lot of recent comments that financial crises have a rhythm, as if they were breathing. This one has been up and down, up and down for months now, and it's getting really tiresome.
And of course, its impact on the real economy and on the political environment is starting to accumulate.
Thanks for the reply and again
by DGaines
great reporting on the ongoing financial drama.
Ah, a low Ted = cheap credit. How to remember?
by streetwise
Ted Baxter
Sorry, couldn't resist!
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Does this mean we could see the dollar strengthen against the euro and pound? Please oh pretty please!?!?!?