The TED Spread is currently at 385 basis pts which indicates a severe risk aversion in the market explains Nouriel Roubini on his RGEMonitor blog.
The reluctance of banks to transact commercial paper could be disastrous as we head into the holiday season as retailers need loans to stock up on goods to sell. If the lending doesn’t happen soon we could see much more pain ahead. Unfortunately, the seize up doesn’t seem to be easing.
This doesn’t appear to be a good holiday season ahead!
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If the TED spread is widening, the question becomes is it because inter bank lending rates are rising, or treasury rates are falling, or both?
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barnaby, if the treasury rate falls then the LIBOR should fall in lockstep if the risk premium stays the same. If treasury falls and LIBOR stays the same it means risk premium has increased. At least that is how I understand it.
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