Thursday, September 11, 2008

EPJ Dictionary: TED Spread

TED stands for Treasury Eurodollar.

The TED spread measures the difference between the interest rate of the US Treasury 3-month T-bills and the 3-month LIBOR: London Interbank Offered Rate which is the Eurodollar interest rate at which banks lend to each other. When this gap is large, banks are less willing to lend to one another at risk-free rates, and thus it is an indicator of how risky banks consider the environment to be.

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