The TED spread, which is the 3-month LIBOR rate – the 3-month T-bill interest rate, is thought of and observed as an indicator of perceived credit risk in the economy. T-bills are considered risk-free while LIBOR reflects the credit risk of lending to banks. When the TED spread moves sharply higher, it can be a sign that lenders believe counterparty risk is rising.
The TED spread spiked from sub-20 to over 150 in March of this year – and here we are again sub-20. According to the TED, credit risk is currently very, very low. Just an interesting observation since our economy is much weaker now vs. the pre-Feb/March selloff; probably reflects the incredible amount of stimulus sloshing around our markets.
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|Chart of The Day – June 17, 2020|