2009 Christmas Card from the U.S. Credit Market
The TED spread is the difference between the three-month LIBOR rate (includes a credit risk premium) and the three-month risk-free Treasury bill rate, and is considered to be a good indicator of the overall amount of perceived credit risk in the economy. On September 15, 2008 the TED Spread jumped by 65.5 basis points (from 134.85 bps to 200.35 bps) as Lehman Brothers filed for bankruptcy and fears about credit risk soared. Two days later on September 17 as fears about credit and financial risk intensified, the TED Spread jumped by another 82.6 basis points (bps) to more than 300 bps, setting a new record (back to at least 1990) for the largest one-day increase in the TED spread (that record still stands), and setting a new record for the highest TED Spread to date.
At the height of the financial crisis a month later, the TED Spread hit 456.485 basis points on October 13, 2008, an all-time, unprecedented record. As the credit and financial markets have gradually healed over the last year, the TED Spread has fallen by more than 400 bps to the current level of about 25 bps, the same level that existed before the financial crisis (see chart above). This is one more sign that the recession has ended, and another reason to celebrate this year's holiday cheer from the credit markets.