What Drives the TED Spread Higher?
A lower yield on the 3-month Treasury bill, or a higher yield on the 3-month LIBOR rate, or both. Increased demand will cause the yield on U.S. Treasuries to decline as institutional and individual investors across the globe move money from riskier investments like stocks and corporate bonds to the safety of U.S. government debt. The yield on the 3-month LIBOR will move higher when banks that participate in the London wholesale money market think that other banks may have problems paying back their short-term loans. The greater the perceived risk, the higher the rate. The Peak of The Credit Crisis During the fall of 2008, subprime lending and ill-conceived derivative products brought the international banking system to its knees. The global liquidity crisis was at its peak. Venerable Wall Street banks like Lehman Brothers and Bear Stearns failed. Large banks like Citigroup, Washington Mutual and Wachovia were also in big trouble due to bad investments and low-quality loans. The problem
