Saturday, June 12, 2010

Just one reason I'm staying out of the equity playground right now.

The equity markets are always inundated with economic news and indicators.  One of those indicators that 'doesn't really matter until it does' is the TED (Treasury / EuroDollar) spread or the difference between short term US Treasury rates (Treasury) and short term dollar denominated debt in Europe (Eurodollar)  It is a good indicatior of distress in the short term money markets and before the crisis of fall 2008 the TED spread was flashing a warning signal. 

As you can see from the chart above the TED spread has started to turn upwards after spending all of 2009 in a steady decline.  You can play with the graph at if you want to zoom in or change the indicators.  While the TED spread is currently below the elevated levels of early 2008 it has been consistently rising since late April 2010.    This rise also lends credence to the feeling many have (including myself) that this correction is different than all the others we've had since the March 2009 lows.

Until the TED spread takes a rest from its ascent I'll most likely be watching the stock market from the sidelines.

edit: does not show the TED spread in real time. You can watch it real time here:


  1. So interbank lending in eurodollars is tightening. This stands to reason given the timing of the turn (Greek solvency crisis).

    Like many discussions we've had on this topic, I see this as a natural market reaction to banking industry opacity.

    I would expect a similar "walk down" along the lines of the post-Lehman banking crisis as weak institutions are quietly closed or given capital injections (depending on their relative health).

    Hopefully the "walk down" will begin sooner rather than later.

  2. When is always the question, but as long as TED keeps climing it does not bode well for risky assets.

  3. I just edited the post. You can watch the TED spread in real time on bloomberg: