Talk:TED spread

Untitled

This needs to be bulked up but I need to reread Don Coxe's book again for more details... Carbonate 00:03, 21 September 2006 (UTC)

This sounds alarmist and possibly misrepresents the facts: "reaching an all-time high" -- This article at Seeking Alpha (http://seekingalpha.com/article/45987-understanding-the-ted-spread) shows the TED spread approaching 2.5 in 2007, but that in 1987 the spread was much higher. I'm no expert on the TED spread, fwiw. [cw]

I edited the text today (September 17), but later it was edited again. Someone put a comment in the history that says there's "no need to turn this into a daily bulletin". Why not? A lot of people, including myself, are curious about the TED spread. I recommend the "current event" notice be put at the top of this page. Also, the above paragraph is no longer correct, it did reach an all-time high just today. --Kreline (talk) 00:13, 18 September 2008 (UTC)

It was I who changed it. This is supposed to be an encyclopedic entry describing what the TED spread is. It is not meant to be a daily bulletin giving up-to-date quotes on closing prices, just like we don't publish daily exchange rates in the article for Euro or Pound sterling. We have Wikinews for topical issues, although I doubt this would qualify there either. Owen× ☎ 01:34, 18 September 2008 (UTC)

I don't think Wikipedia should report quotes as a news service. I'm for reverting the quotations for Sep/29/08.--Gciriani (talk) 22:13, 29 September 2008 (UTC)

Is Reuters Correct?

I checked other sources (Bloomberg) that give a maximum of 310 bp on September 18, and not 490 as quoted by Reuters. Also if you use the definition of TED spread you cannot obtain anything close to 5%. The 3-month Treasury bill was almost 0 on September 18, while the 3-month LIBOR in USD was around 3.1. The difference is just the 3.10% given by Bloomberg. Instead the LIBOR given in Euro was around 5%, but this is not the value used for the calculation. I believe that in the rush of the breaking news Reuters made a mistake and calculated the TED using the EUR rather than the USD rate. This supports the point made above by another editor that news should not reported in the article. I second the elimination of the Reuters citation, and propose a link to a site that gives the value.--Gciriani (talk) 18:53, 22 September 2008 (UTC)

The statement

``The Libor is meaningless. It's for unsecured lending and there is no unsecured lending as far as I can see.

from the cited Bloomberg article does not support the sentence at the end of the Wikipedia article.

Some higher readings for the spread were due to inability to obtain accurate LIBOR rates in the absence of a liquid unsecured lending market.

The article doesn't say that the entity supplying the LIBOR was not able to obtian an accurate rate. The statement is the opinion of an analyst, who says that it's meaningless, not that it cannot be obtained. The TED spread is only a calculated index which needs T-Bill and LIBOR, basta: no question asked whether it is meaningful or meaningless.--Gciriani (talk) 01:57, 25 September 2008 (UTC)

The TED spread is a calculated index, indeed, but it is not fabricated from thin air. It needs valid values for both the T-Bill and the LIBOR to get a meaningful result. LIBOR itself is an index too, and it needs actual interbank unsecured loans to calculate it. So without a market for unsecured interbank loans, neither LIBOR nor TED can be calculated. Some news-feed services have recently tried to calculate LIBOR rates based on one or two small odd deals, leading to inconsistent, nonsensical values. This is like trying to calculate the currency exchange rate for a small isolated country based on the rate used by a tourist shop at the local airport.

If you think my wording can be improved, please go ahead and reword that sentence. But I find your bulk removal of the statement with the highly relevant reference to be of very poor form, and am reverting the deletion. Owen× ☎ 12:19, 25 September 2008 (UTC)

Fine then, let's leave it the way you worded it. What I do not understand is, and perhaps you can explain, why the BBA says in its site that:

BBA LIBOR is the most widely used "benchmark" or reference rate for short term interest rates. It is compiled by the BBA in conjunction with Reuters and released to the market shortly after 11.00am London time each day.

So if they released it on the 18th at 11 am (you can download their spreadsheet, which for September 18 reported 3.20), technically the TED was 3.2 as reported by Bloomberg. Reuters who reported the value up to almost 5% where did they pull that number from?--Gciriani (talk) 02:40, 27 September 2008 (UTC)

Both Reuters and Bloomberg are respectable data providers. I don't know where Reuters got its 5% number, but it is clearly inconsistent with anything else. A good sanity check for LIBOR is the CME's Eurodollar futures contract. The Eurodollar is the rate for 90 day interbank deposits rather than 30 days, and, technically, even the nearest month contract can differ from the spot price by a couple of basis points, but all in all the two rates--30 day spot and 90 day futures--are joined at the hip. The advantage of the CME quote is that it reflects hundreds of thousands of contracts traded each day, corresponding to an underlying volume of hundreds of billions of dollars. The Eurodollar has traded around 3.4% on 18 September, and T-Bills were less than 0.2% that day, matching the figure from Bloomberg. (Note that CME quotes in discount form, so "96.50" corresponds to 3.5%.) Owen× ☎ 13:56, 27 September 2008 (UTC)

Too Newsy

There are too many updates of daily quotes, and no cleanup of old ones. This demonstrates in my opinion that the entry should not report the latest record, but at most report the trend that brought it to record highs and why.--Gciriani (talk) 16:09, 3 October 2008 (UTC)

Annualized?

Are the units on the TED spread annualized interest rates, or 3 month interest rates? Homunq (talk) 13:00, 15 October 2008 (UTC)

Annualized. All quoted rates for fixed income instruments are annualized. Owen× ☎ 17:45, 15 October 2008 (UTC)

pardon a stupid question

but these two statements seem to be contradictory: "TED spread is now calculated as the difference between the three-month T-bill interest rate and three-month LIBOR" and "When the TED spread increases, that is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. Interbank lenders therefore demand a higher rate of interest, or accept lower returns on safe investments such as T-bills." If the T-bill rate is the safe rate and if investors are willing to accept a lower return on safe investments then the TED spread should decrease since according to the first sentence Ted Spread = T-bill rate - Libor. But a lower rate on T-bills represents the belief that the risk of default on interbank loans is higher. Hence it contradicts the second sentence. What am I missing? Or is it just absolute value because the Libor rate is always higher than the t-bill rate?

Exactly. LIBOR is essentially always higher than the T-bill rate. TED spread is LIBOR minus T-Bill. Owen× ☎ 23:34, 31 March 2009 (UTC)