TED Spread

The TED spread is the difference between the interest rate on interbank loans and the interest rate on short term United States government debt, with its name combining T-Bill and ED, the ticker for Eurodollar futures contracts. It was historically calculated as the gap between the three month LIBOR rate and the three month Treasury bill rate, a calculation that has been partly replaced by measures based on the Secured Overnight Financing Rate since LIBOR was discontinued in 2021. A widening TED spread signals rising concern about credit risk and the possibility of bank defaults and has historically preceded stock market downturns, and the spread has typically stayed in a range of about ten to fifty basis points during calm periods while expanding sharply during financial crises.