The above chart shows the interest rate spread between the three-month Libor rate and the three-month Treasury bill rate (TED Spread). The Libor rate is the rate at which banks lend unsecured money to each other and reflects the credit risk of interbank lending. The Treasury bill on the other hand is believed to have extremely low risk. Therefore, the spread between the two (TED spread) is often used as an indictor of risk of default on interbank lending. An increase in the TED spread is a sign of more perceived risk in this market.
While off of its peak the TED spread remains elevated at over 100 basis points.
Data Source:
> U.S. Federal Reserve. H.15 Selected Interest Rates
> British Bankers’ Association
> Bloomberg.Com
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