gipa69
collegio dei patafisici
Uno dei classici indicatori di rischio finanziario sta impazzendo.... 
ABN - Global FX Daily
Picking up on worrying developments in the TED spread:
There have been a number of signs of extreme conditions in US credit markets, including a spike in general credit spreads and the sharp sell-off in financial services equities. However, none of those signs of stress appears as extreme as the widening of the so called TED spread in the last 3 days.
From Monday’s close through Wednesday’s close, the yield on 3-month US treasury bills has fallen 55bp. Treasury yield swings of that magnitude are rare, but when they occur, they are usually the result of a surprise rate change by the Fed and the swing in Treasury yields is accompanied by a similar move in bank interest rates. However, in this case, while there is a growing expectation that the Fed may ease rates at or before its 18-Sep meeting, bank rates are not declining along with Treasury yields. Three-month LIBOR actually jumped last Friday to 5.58% and fixed yesterday at 5.52%. With the yield on 3m treasuries falling all the way to 4.04%, that puts the so-called TED spread (3m LIBOR less 3m treasury yield) at 148bp. To put that 148bp in perspective, the TED spread has averaged 47bp over the last 10 years and had averaged just 34bp in Q1 of 2007. The widest the TED spread got in the wake of Hurricanes Katrina and Rita was 60bp. The widest the TED spread reached in the month after September 11th was 61bp. One has to go all the way back to the late 1990s to find TED spreads as wide as they are at present. The TED spread widened to 166bp in the days following the LTCM crisis in October 1998 and to 168bp in October 1999 when Greenspan sparked a 7% equity market decline by saying that financial institutions needed to prepare for an unwinding of “irrational exuberance.”
The biggest implication of wide TED spreads for FX markets is that they tend to be associated with extreme volatility and wide bid/offer spreads in forward points. There has been extreme volatility in forward points for a number of FX pairs this week, but thus far there has been little impact on spot volumes and bid/offer spreads. However, given the way the subprime contagion has spread from market to market in the past month, this situation warrants close attention.
ABN - Global FX Daily
Picking up on worrying developments in the TED spread:
There have been a number of signs of extreme conditions in US credit markets, including a spike in general credit spreads and the sharp sell-off in financial services equities. However, none of those signs of stress appears as extreme as the widening of the so called TED spread in the last 3 days.
From Monday’s close through Wednesday’s close, the yield on 3-month US treasury bills has fallen 55bp. Treasury yield swings of that magnitude are rare, but when they occur, they are usually the result of a surprise rate change by the Fed and the swing in Treasury yields is accompanied by a similar move in bank interest rates. However, in this case, while there is a growing expectation that the Fed may ease rates at or before its 18-Sep meeting, bank rates are not declining along with Treasury yields. Three-month LIBOR actually jumped last Friday to 5.58% and fixed yesterday at 5.52%. With the yield on 3m treasuries falling all the way to 4.04%, that puts the so-called TED spread (3m LIBOR less 3m treasury yield) at 148bp. To put that 148bp in perspective, the TED spread has averaged 47bp over the last 10 years and had averaged just 34bp in Q1 of 2007. The widest the TED spread got in the wake of Hurricanes Katrina and Rita was 60bp. The widest the TED spread reached in the month after September 11th was 61bp. One has to go all the way back to the late 1990s to find TED spreads as wide as they are at present. The TED spread widened to 166bp in the days following the LTCM crisis in October 1998 and to 168bp in October 1999 when Greenspan sparked a 7% equity market decline by saying that financial institutions needed to prepare for an unwinding of “irrational exuberance.”
The biggest implication of wide TED spreads for FX markets is that they tend to be associated with extreme volatility and wide bid/offer spreads in forward points. There has been extreme volatility in forward points for a number of FX pairs this week, but thus far there has been little impact on spot volumes and bid/offer spreads. However, given the way the subprime contagion has spread from market to market in the past month, this situation warrants close attention.
