Useful US financial indicator - TED spread

C

Caput Lupinum

Well-Known Member
Silver Stacker
The TED spread measures the difference between the three-month US Libor rate and the three-month T-bill interest rate. It is an important indicator of underlying (US) market risk. LIBOR represents the interbank-lending rate. When it rises relative to risk-free Treasury bills, the implication is that perceived credit risk is increasing among counterparties. Historically, a rising (followed by spiking) TED Spread preceded major liquidity events in financial markets.

If you notice in the graph, the TED spread rose "before" the GFC started in August 2007 from about 0.50 percent up to 2.00 percent before peaking to 4.50 percent at the height of the GFC before flatlining to about 0.20 percent with small spikes 2010 (Greek crisis) and 2012 (European Debt Crisis). Currently it has shown some signs of life reaching 0.45 percent in recent weeks.

https://research.stlouisfed.org/fred2/series/TEDRATE

fredgraph.png



Save it to the favourite's folder and check in on it once a week. Take more notice if it starts spiking or reaches above 2.00 percent.
 
There are many charts at the Fed and other cb's that suggest something broke in 2008, it's now 6 years later, still unclear what broke. If I'd try to throw a general conclusion about it, I'd say that most so called big things happened only in the electronic (Fed balances) world. How many / which % bank savers lost savings in 2008? Didn't encounter much stories. Alot concerns upto panic, alot expectations of inflation upto hyperinflation, all turnt out wrong. 2016, 6 years later.
To me, this all looked alot like a bogus crisis. And it's not that hard to realize why: all the central planners wanted, was savers wasting their savings along temporary driven up prices.
 
willrocks said:
Jim4silver said:
Can someone please explain what the chart is saying?
Click to expand...

Something broke in 2008 and hasn't recovered since?
Click to expand...
And maybe 2008 was just the beginning, a small ripple before the tsunami hits? People are now wandering about on the beach, collecting some shiny baubles from the beach that was earlier covered by water. A couple of people are running for the hills, but they are dismissed as fools. Who will still be around in a decade's time to recount what happened next?
 
The TED spread has just spiked the most since early 2012. Maybe nothing as I believe they recently recalibrated the way they calculate the TED spread or is the European banking system about to take a steaming dump? :|

The Ted spread can be used as an indicator of credit risk. This is because U.S. T-bills are considered risk free while the rate associated with the Eurodollar futures is thought to reflect the credit ratings of corporate borrowers. As the Ted spread increases, default risk is considered to be increasing, and investors will have a preference for safe investments. As the spread decreases, the default risk is considered to be decreasing.
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http://www.investopedia.com/terms/t/tedspread.asp#ixzz4GPCfOJGc

fredgraph.png
 
Thanks again Caput.

The European banking system is definately terminally sick but it's hard to know when it might roll over. It could be this week or it could stay on life support for years. Indicators like this one might help provide a warning for outsiders like us. Pls keep us posted.
 
BuggedOut said:
Thanks again Caput.

The European banking system is definately terminally sick but it's hard to know when it might roll over. It could be this week or it could stay on life support for years. Indicators like this one might help provide a warning for outsiders like us. Pls keep us posted.
Click to expand...


I think it will stay like this for a while. Real big money has nowhere to go. All economies are going down the toilet, so they are all going to print more fiat and not worry about it. Can't call on a debt cause the creditors will also be shooting themselves in the foot.
 
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