Financial Glossary: Ted Spread


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Ted Spread

Ted Spread

The price difference between three-month futures contracts for U.S. Treasuries and three-month contracts for Eurodollars having identical expiration months.

The Ted spread can be used as an indicator of Credit risk. This is because U.S. T-bills are considered Risk free while the rate associated with the Eurodollar futures is thought to reflect the credit ratings of corporate borrowers. As the Ted spread increases, Default Risk seems to be increasing, and investors Will have a preference for safe investments. As the spread decreases, the Default Risk is considered to be decreasing.

Many traders in the futures markets actively trade the Ted spread, speculating that the difference between U.S. Treasuries and Eurodollars Will increase or decrease. The Ted spread also is used as an indicator of confidence in the U.S. Government and the general level of fear or confidence in the markets for private financing. A narrow spread indicates confidence in financial markets in general and the U.S. Government in particular. When the spread is wide, confidence is diminished.

Posted by Privatebanking.com

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