TED Spread in the Global Credit Crisis. During financial crises, short-term interest rates will often change quickly (typically up) as indications that markets are under severe stress. The interest rates shown in the table. E are for selected dates in September October 2008. Different publications define the TED spread the Treasury-Eurodollar spread in different ways. One measure is the differential between the overnight LIBOR interest rate and the 3-month US Treasury bill rate a. Calculate the TED spread the difference between the two market rates shown in the table-in September and October 2008 b. On what date is the spread the narrowest? The widest? c. When the spread widens dramatically, presumably demonstrating some form of financial anxiety or crisis, which of the rates moves the most and why? a. Calculate the TED spread the difference between the two market rates shown in the table-in September and October 2008 (Round to two decimal places.) 3.Month U.S. Treasury 170 % 1.65% TED Spread Overnight USD Date LIBOR 9/8/08 2.15% 9/9/08 2.14% 9/10/08 2.13% 9/11/08 2.14 % 9/12/08 2.15% (Round to two decimal places) 1.65% 1,60 % 1.49% TED Spread Overnight USD Date LIBOR 9/15/08 3.11% 9/16/08 644 9/17/08 503 9/16/08 384 9/15/08 325 (Round to two decimal places) 3 Month U.S. Treasury 083 0.79 0045 007 097 3-Month Overnight USD U.S. TED Date LIBOR Treasury 0.41 % Spread % 0.89 % % 0.81 % % 9/29/08 2.57 % 9/30/08 6.88 % 10/1/08 3.79% 10/2/08 2.68 % 10/3/08 2.00 % (Round to two decimal places.) % 0.60 % 0.48 % % Overnight USD 3-Month U.S. Treasury 0.48% 0.79 % TED Spread % % Date LIBOR 10/6/08 2.37 % 10/7/08 3.94 % 10/8/08 5.38 % 10/9/08 5,09 % 10/10/08 2.47 % (Round to two decimal places.) 0.65 % % 0.55 % % 0.18 % % Overnicht 3 Month Overnight 3-Month USD U.S. TED Date LIBOR Treasury Spread 10/13/08 2.47 % 0.18% % 10/14/08 2.18 % 0.27 % % 10/15/08 2.14 % 0.20 % % 10/16/08 1.94 % 0.44 % % 10/17/08 167 % 0.79% % b. On what date is the spread the narrowest? The widest? (Select from the drop-down menus.) The spread is the narrowest on %. The widest spread occurs on at a whopping % This is a nearly unheard of spread size, and is still extremely high in the following trading days, c. When the spread widens dramatically, presumably demonstrating some form of financial anxiety or crisis, which of the rates moves the most and why? (Select from the drop-down menus) Although the theoretician would quickly respond - without looking that the overight LIBOR rate is what should be spiking According to theory, this represents the uncertainty over counterparty risk in the interbank market But looking at the two interest rate series reveals a second cause to the widening of the spread the dramatic in the 3-month Treasury bill rate. The T-Bill rate was driven to incredible on selected dates. This was a result of two actions 1) the US Federal Reserve actions of pumping liquidity into the system, and 2) the flight of financial institutions to "quality" as they bid the price of T-Bills and with it, yields at Data Table (Click on the icon to copy the information to a spreadsheet.) 3-Month Overnight USD U.S. Date LIBOR Treasury 9/8/08 2.15 % 1.70 % 1.65 % 9/9/08 9/10/08 2.14 % 2.13% 2.14 % 1.65 % 9/11/08 1.60 % 2.15 % 1.49 % 9/12/08 9/15/08 3.11 % 0.83 % 0.79 % 6.44 % 9/16/08 9/17/08 0.04 % 5.03% 3.84 % 9/18/08 0.07% 3.25 %. 0.97 % 2.97% 2.95 % 2.69 % 9/19/08 9/22/08 9/23/08 9/24/08 9/25/08 9/26/08 9/29/08 9/30/08 10/1/08 10/2/08 10/3/08 256 % 2.31 % 257 % 6 88% 3.79% 2.68 % 2.00% 0.85 % 0.81 % 0.45 % 0.72% 0.85% 0.41 % 0.89 % 0.81 % 0.60 % 0.48 % Brol prd stille m Data Table 9715/08 3.11 % 6.44% 0.83 % 0.79 % 9/16/08 5.03 % 0.04 % 9/17/08 9/18/08 3.84 % 0.07 % 9/19/08 0.97 % 3.25 % 2.97 % 9/22/08 0.85 % 2.95 % 9/23/08 9/24/08 9/25/08 9/26/08 9/29/08 9/30/08 2.69 % 2.56 % 2.31 % 0.81 % 0.45% 0.72 % 0.85 % 0.41 % 2.57 % 6.88 % 10/1/08 10/2/08 10/3/08 10/6/08 10/7/08 10/8/08 0.89 % 0.81 % 0.60 % 0.48 % 0.48 % 0.79% 0.65 % 0.55% 0.18% 0.18% 027 020 0.44 0.79% 3.79% 2.68 % 2.00% 2.37% 3.94% 5.38 % 5.09% 2.47% 2.47% 2.18% 2145 1945 1675 10/9/08 10/10/08 10/13/08 10/14/08 10/15/08 10/16/08 10/17/08 TED Spread in the Global Credit Crisis. During financial crises, short-term interest rates will often change quickly (typically up) as indications that markets are under severe stress. The interest rates shown in the table. E are for selected dates in September October 2008. Different publications define the TED spread the Treasury-Eurodollar spread in different ways. One measure is the differential between the overnight LIBOR interest rate and the 3-month US Treasury bill rate a. Calculate the TED spread the difference between the two market rates shown in the table-in September and October 2008 b. On what date is the spread the narrowest? The widest? c. When the spread widens dramatically, presumably demonstrating some form of financial anxiety or crisis, which of the rates moves the most and why? a. Calculate the TED spread the difference between the two market rates shown in the table-in September and October 2008 (Round to two decimal places.) 3.Month U.S. Treasury 170 % 1.65% TED Spread Overnight USD Date LIBOR 9/8/08 2.15% 9/9/08 2.14% 9/10/08 2.13% 9/11/08 2.14 % 9/12/08 2.15% (Round to two decimal places) 1.65% 1,60 % 1.49% TED Spread Overnight USD Date LIBOR 9/15/08 3.11% 9/16/08 644 9/17/08 503 9/16/08 384 9/15/08 325 (Round to two decimal places) 3 Month U.S. Treasury 083 0.79 0045 007 097 3-Month Overnight USD U.S. TED Date LIBOR Treasury 0.41 % Spread % 0.89 % % 0.81 % % 9/29/08 2.57 % 9/30/08 6.88 % 10/1/08 3.79% 10/2/08 2.68 % 10/3/08 2.00 % (Round to two decimal places.) % 0.60 % 0.48 % % Overnight USD 3-Month U.S. Treasury 0.48% 0.79 % TED Spread % % Date LIBOR 10/6/08 2.37 % 10/7/08 3.94 % 10/8/08 5.38 % 10/9/08 5,09 % 10/10/08 2.47 % (Round to two decimal places.) 0.65 % % 0.55 % % 0.18 % % Overnicht 3 Month Overnight 3-Month USD U.S. TED Date LIBOR Treasury Spread 10/13/08 2.47 % 0.18% % 10/14/08 2.18 % 0.27 % % 10/15/08 2.14 % 0.20 % % 10/16/08 1.94 % 0.44 % % 10/17/08 167 % 0.79% % b. On what date is the spread the narrowest? The widest? (Select from the drop-down menus.) The spread is the narrowest on %. The widest spread occurs on at a whopping % This is a nearly unheard of spread size, and is still extremely high in the following trading days, c. When the spread widens dramatically, presumably demonstrating some form of financial anxiety or crisis, which of the rates moves the most and why? (Select from the drop-down menus) Although the theoretician would quickly respond - without looking that the overight LIBOR rate is what should be spiking According to theory, this represents the uncertainty over counterparty risk in the interbank market But looking at the two interest rate series reveals a second cause to the widening of the spread the dramatic in the 3-month Treasury bill rate. The T-Bill rate was driven to incredible on selected dates. This was a result of two actions 1) the US Federal Reserve actions of pumping liquidity into the system, and 2) the flight of financial institutions to "quality" as they bid the price of T-Bills and with it, yields at Data Table (Click on the icon to copy the information to a spreadsheet.) 3-Month Overnight USD U.S. Date LIBOR Treasury 9/8/08 2.15 % 1.70 % 1.65 % 9/9/08 9/10/08 2.14 % 2.13% 2.14 % 1.65 % 9/11/08 1.60 % 2.15 % 1.49 % 9/12/08 9/15/08 3.11 % 0.83 % 0.79 % 6.44 % 9/16/08 9/17/08 0.04 % 5.03% 3.84 % 9/18/08 0.07% 3.25 %. 0.97 % 2.97% 2.95 % 2.69 % 9/19/08 9/22/08 9/23/08 9/24/08 9/25/08 9/26/08 9/29/08 9/30/08 10/1/08 10/2/08 10/3/08 256 % 2.31 % 257 % 6 88% 3.79% 2.68 % 2.00% 0.85 % 0.81 % 0.45 % 0.72% 0.85% 0.41 % 0.89 % 0.81 % 0.60 % 0.48 % Brol prd stille m Data Table 9715/08 3.11 % 6.44% 0.83 % 0.79 % 9/16/08 5.03 % 0.04 % 9/17/08 9/18/08 3.84 % 0.07 % 9/19/08 0.97 % 3.25 % 2.97 % 9/22/08 0.85 % 2.95 % 9/23/08 9/24/08 9/25/08 9/26/08 9/29/08 9/30/08 2.69 % 2.56 % 2.31 % 0.81 % 0.45% 0.72 % 0.85 % 0.41 % 2.57 % 6.88 % 10/1/08 10/2/08 10/3/08 10/6/08 10/7/08 10/8/08 0.89 % 0.81 % 0.60 % 0.48 % 0.48 % 0.79% 0.65 % 0.55% 0.18% 0.18% 027 020 0.44 0.79% 3.79% 2.68 % 2.00% 2.37% 3.94% 5.38 % 5.09% 2.47% 2.47% 2.18% 2145 1945 1675 10/9/08 10/10/08 10/13/08 10/14/08 10/15/08 10/16/08 10/17/08