TED SPREAD (zt)

What is TED SPREAD? The TED spread is the difference between three-month LIBOR (the London Inter Bank Offered Rate) and three-month US Treasury bills The 3-month Treasury is virtually risk-free, while lending money to banks can be hazardous to your bottom line. Those who lend to banks deserve something in return for taking on that risk – a premium above what they would have earned by buying Treasuries. That premium is called the TED spread. Where to find TED SPREAD Chart? Here is the link for TED SPREAD quote and daily chart: http://www.bloomberg.com/apps/quote?ticker=.TEDSP:IND Why TED SPREAD is so important? There are more than 45 Trilling capital lending around Global based on LIBOR rate. That includes Mortgage Rate, Home loan, Business loan, Student loan, Car loan, etc. If TED SPREAD remains at high level, business can not get loan from the banks or significantly increase the cost of borrowing, this could seized business or significantly damage the business earning power. Most Companies can not do business with each other. This will cause deep economic recession. Why TED SPREAD is important to stock market? TED spread directly measures credit conditions and is a widely watched barometer of interbank lending. The TED spread is usually around 50 basis points, but rose above 100 basis during the start of the credit crisis. Why is the TED spread rising? When banks are not keen to lend money, they demand a higher premium to do so. The three-month LIBOR is essentially what banks charge each other to borrow money. As investors flock to ultra-safe government treasury bills, yields have fallen. Also, banks' distrust of lending to each other pushes interbank lending rates up, creating a large spread. The TED spread is a key indicator of risk. A wide spread indicates a bigger aversion to risk and points to evidence of distress in the financial market.