A lot has been made in the MSM of the falling Ted spread, or the difference between the 3-Month Treasury rate and the interbank lending rate. A high Ted is commonly viewed as a sign that banks are not very creditworthy.
In absolute terms, the Ted is rather low at .18%. But a closer examination shows the Ted is trading at extremes never before explored. Let's take a look:
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgELBvHboZPy5z_zgFadZiCe-8ZA4nu_woBE6Yy-0eIKLOuhYHrmhFtbJ7RFGXcYG5HgmG9qzMv5fLJWOZ8HMbKpf8NgsipBnqM1zE3TOeeJJglCWLJN1xcK8qGXed3t0EUG5OhH45gJw/s400/800px-Ted-Spread.png)
Even a Yale-trained economist can see that over the past decade the Ted has generally hovered around 50 basis points, or a 1/2 percent above the 3-M T. But obviously absolutes don't matter, what matters is what the premium represents in terms of the anticipated return. If I'm expecting a return of $5 per $100, a 0.5% premium of is a 10% surcharge. If I'm making $1 per $100, a 0.5% premium is a 50% charge.
With common sense in mind, the chart below shows what the Ted has actually been doing. Historically, banks have paid a relatively stable 10% to 20% premium for each dollar earned. With that in mind, a "drop" to 400% doesn't sound quite as wonderful:
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRsHoEZVpOZ5rhiB2fU8eVK8fmg5WshC35Hmi-uV-_I3elP14Uh2oGJ6uVB0N6j6xv3v-NblRKUP9dhTS_eXliGMS00FSVGgpogANvbgyBnD9XS5kzyZzBD1aMBHRT8tQ4VdO9ANZAMQ/s400/Ted.png)
Thanks for this FDR. I've been following the TED since last fall and I was curious as to why it seems so low when the distress in the banking system is still evident.
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