Le Shorter: Know Your Spreads

The TED spread reached a record high of 4.02% Wednesday before retreating to 3.81% and after dipping as low as 3.46% Tuesday. Just over a month ago, the TED spread was only 1.04% (typically it is 50 basis points). The spread is the difference between the rate for a 3 month treasury bill and the London Interbank Offerred Rate (LIBOR) for three months and measures banks' risk aversion. The LIBOR-OIS spread (Overnight Indexed Swaps) set a record at 3.22%, before retreating slightly to 3.21%, and blowing past the record 2.97% spread reached Tuesday. The bigger the spread, the less cash is available for lending. Translation: Big trouble, Kimosabe.