bMighty vs. Bernanke - The TED Spread Is Down, So Why Aren't We Smiling? - InformationWeek

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1/9/2009
06:49 PM
Fredric Paul
Fredric Paul
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bMighty vs. Bernanke - The TED Spread Is Down, So Why Aren't We Smiling?

Last Fall, at the height of the credit crisis, a variety of esoteric financial indexes, including the TED Spread and the LIBOR, were setting new records, and not in a good way. Well, the TED Spread has fallen back to earth, but the economy keeps getting worse. What the heck is going on here?

Last Fall, at the height of the credit crisis, a variety of esoteric financial indexes, including the TED Spread and the LIBOR, were setting new records, and not in a good way. Well, the TED Spread has fallen back to earth, but the economy keeps getting worse. What the heck is going on here?Like just about everyone else, The rANT never wanted to know anything about the TED Spread. But when the credit markets got lockjaw last September, we all got bombarded with this stuff. That's partly how we got talked into the ginormous financial bailout.

Now its several months later, and while the banks may have used the money to shore up their balance sheets instead of lending it to companies that need it, the credit markets have eased dramatically -- at least as measured by the TED Spread - the difference between the yeild on 3-month treasury bills and the yield on the LIBOR.

Back in October, the spread topped out at more than 400 basis points, far above any previous highs. But recently it's dropped back to a 2008-typical 130 basis points. As this video explains, that's good news, right?

Well, not so fast.

As you may have noticed, the economy still sucks. Apparently, the TED Spread hasn't narrowed in the right way. While the LIBOR has fallen, Treasury yields have hardly budged -- indicating that people are still very interested in safe havens, not riskier but higher-yield investments. We're only halfway there.

The rANT is ticked off. After spending all that time and energy learning new financial arcania, it turns out you can't trust the TED Spread, either.

Want a new stat to watch? Try the unemployment figures.

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