Saturday, April 19, 2008

TED spread

What's the TED spread? Kevin Drum:
The TED spread is the difference between the interest rate on 3-month treasury bills (safe as houses, um, well, really safe, anyway) and the rate banks charge each other for 3-month loans (the LIBOR rate). I'd never heard of the TED spread until a couple of months ago, but apparently it's a pretty good indication of financial jitters. When the financial markets are calm and happy and everyone is paying their bills, the spread is small. Banks lend to each other for only a small premium above what Uncle Sam charges. When fear takes over (will Bear Stearns really be able to pay back that loan?) banks raise their interest rate and the TED spread increases.
So, what's it look like these days (image from Kevin Drum):

So banks are still pretty jittery.

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