THE BASIS POINT

TED Spread Normalizing?

The TED Spread fell to 1.48% this week, only down 1 basis point on the week but down from a record high of 4.64% on October 10. The TED Spread is an important indicator of credit availability and historical norms are about 30 basis points (0.3%), with a range of 10 to 50 basis points (0.1% to 0.5%), so we’re still well above normal levels. Below is a good TED Spread definition from SeekingAlpha. And also see the Benchmark Rates in our Data section for downloadable 3mo T-Bill and 3mo LIBOR data (which are the two TED Spread inputs).

The TED spread measures the difference between the three month US Treasury Bill and the three month Eurodollar Future. Elevated readings in the indicator indicate an increased level of risk aversion in the market, as investors flock to short term T-bills which due to their credit quality and short time horizon are considered risk free, while Eurodollar futures are more representative of the credit quality of corporate borrowers.