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The Ted Debate

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by Felix Salmon
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Oct 27 2008 1:46am EDT

The TED Debate

Alex Tabarrok puts up a chart of the TED spread over the past 40 years or so, with the clear implication that it's not at unprecedented levels right now. Alea responds with a chart of something he calls the "TED ratio", which is at unprecedented levels but which may or may not be a useful indicator. Both charts are derived from this data, which is probably the best place to look if you want to make your own mind up first.

Looking at that final chart, the thing which jumps out at me is not (only) that the TED spread is very wide right now, but the fact that it has never before gapped out at a time when T-bill rates are falling. For the past 40 years, Eurodollar rates and T-bill rates have moved in the same direction. Now, they're moving in opposite directions. I don't know what that says about the credit crunch, but it does seem to say something about how crazy the markets are at the moment.

Incidentally, I'm getting back on a plane Monday morning; don't expect much if any posting until later in the day.

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