TED Spread Widens Again
Wednesday, June 2, 2010 at 10:33AM For the tenth time in the last eleven trading days, the TED spread is once again widening today. For those unfamiliar with the indicator, the TED spread measures the difference between the three-month T-bill interest rate and three-month LIBOR. When the spread is high it is indicative of a higher level of perceived risk in the credit markets as banks increase the rate at which they are willing to lend to each other. As shown in the chart below, the TED spread has been getting steadily wider since early March. In early May, the crisis in Greece caused the spread to spike, and when the EU announced its bailout for the Greek government the spread saw a two-day reprieve before resuming its uptrend once again.
While the spread is considerably higher today (39 bps) than it was two months ago (13 bps), the spread is still nowhere near the highs of the credit crisis (450+ bps), and it still has a ways to go before even reaching 52-week highs.
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Reader Comments (5)
Very disappointing that Warren Buffet defended the credit rating agencies today, must hold $Billions of bonds that would suffer greatly if the farce that passed for credit analysis over the last 10 years is brought to the light of day. That investors are pouring into bonds, even the Junk variety, to escape the ravages of a grossly overvalued stock market at the threshold of a double-dip recession, is another sign that the majority do not have a handle on the myriad components of risk inherent in debt-instrument investing. We have Event Risk, such as the Greek Debt Hairball, we have Interest Rate trend risk which will eventually turn to higher levels as the audience realizes the Emperor has no clothes, we have Repayment Risk or Solvency Risk which everyone things is passe with all of the Government Printing Presses running flat out, and we now have Credit Rating Fantasy Risk which means that most AAA rated entities today would be lucky to make BB under 1950 accounting rules. To assign a country, the U.S. of A., a AAA rating when there is a mere $130 to $160 Trillion plus on a good day of unfunded obligations coming due in the next 20 years is to be smoking what Truth-Challenged W.J. Clinton left on the party table at Oxford. Bring Clinton into the Sustek issue, he has no problem with perjury, very shrewd Obama. We ain't going to make it folks, even if ObamaLand takes 100% of your earnings and you become a total ward of the State. The TED Spread is just another canary in the financial world coalmine, Flash Crashes are another. Stock trends have reversed, bonds will eventually too, they are living in LaLa Land regarding yields. While it seems on a daily basis that risk appetite has returned for global investors with a subsequent shrinkage in spreads from "risk-free Treasuries", what a joke, the TED Spread trend is plainly in reversal mode for this new phase of the Financial Panic of 2008.
there should be no ratings agencies.it would be enough for the sec to approve the claims of the issuers for the instrument.the takers must have their rating skills to decide non their own.if they allow the ratings agencies to do for them when will we ever learn.BUYERS BEWARE.If they do not have the skills go and learn .It they still do not know,go and anothyer businee or work in a different industry
Is this the aromatherapy forum?
I enjoyed David's throwdown and every time I run across an honest, informed person like him it brings back the good old days when a dollar was worth most of a dollar, you could fill a gas tank with a Jackson rather than a Grant, having a business card meant you actually knew how to do something and nobody was playing hocky in June and music was played by musicians. Those were the days.
Just for the record I love hockey in June but that does not change the fact that the Emperor has no clothes. YeeeeeHaaaaw!
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