计算对手口袋里有多少钱: TED spread

TALKX Monitor the TED spread as it ticks higher

Global equity indices have found near-term support, and rallied for the past week and a half, but a key measure of liquidity - the TED spread - has continued to tick higher, illustrating incrementally higher short-term borrowing costs. While the spread has no direct correlation with the equity markets, it represents the cost of short-term financing. A rise in the spread indicates a decreasing supply of liquidity, which is bearish for most asset classes. Although the TED spread is not yet at levels that would indicate an urgency to move to safer asset classes, its recent increase after a period of stabilization warrants some attention, especially as the spread approaches the upper end of its historically "normal" range of 10-50 basis points.

Looking back at the past few years, the TED spread was a great indicator of conditions as credit markets froze during the 2008-2009 financial crisis. The TED spread measures the cost of borrowing on the interbank market versus the cost of borrowing from the government. The 3-month LIBOR and 3-month t-bill rates are used to determine the perceived credit risk in the economy. Until 2007 the TED spread generally traded in a range between 10 and 50 basis points, which corresponds to comfortable credit conditions. As the credit crisis escalated in 2007/2008, the cost of borrowing on the interbank market versus from the government rose from roughly 25 basis points to a record 465 basis points (the previous record was near 300 basis points as a result of the October 1987 stock market crash) after Lehman failed. Click here to see a TED spread chart.

As the spread blew out to 465 basis points at the heart of the financial crisis, the Federal Reserve implemented a series of new measures to flood the credit markets with liquidity. These measures included the following: reducing the spread of the discount rate over the target fed funds rate; lengthening the maturity of loans to banks from overnight to 90 days; providing discount window credit through regular auctions to ease the stigma associated with borrowing from the Fed; lending dollars to central banks around the world so those governments could provide dollars to their banks; implementing the Term Asset-Backed Loan Facility (TALF) to provide liquidity and price discovery of the underlying consumer loans; and the Public-Private Investment Program (PPIP) to buy toxic assets from banks and cleanse their balance sheets of bad loans.

Previously unheard of, these drastic measures succeeded in thawing the credit markets and returning the flow of credit to more reasonable levels. The Fed has since been removing these measures in an effort to wane the credit markets off their life support. While the situation has gotten better, the credit markets might be beginning to show signs of incremental concern. As the situation in Europe continues to unfold, pay attention to the TED spread as it will be one of the first signs of trouble in the credit markets. The spread is currently trading at 45 basis points, and a move above 50 could trigger a more cautious view as it is an indication of liquidity coming out of the system.

If the TED spread breaks out above the 50 level, this could be a precursor to more volatility and downside risk in equity markets as it would indicate a negative in credit markets. If this uptick does occur, the flow of money back into the safe-haven shelters (such as bonds and US dollars) will likely pick up, at the expense of riskier assets such as stocks and commodities. Rising volatility would also result in such a situation, which would be evident in a rising VIX. However, if the TED spread backs off these recently elevated levels, risk assets like equities and commodities should benefit.

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