Credit Crisis Watch: A Look on Crisis Indicators

- by Amar Ranu *

Previous

Page - 2

Importantly, the US three-month Treasury Bills are trading at a minuscule 0.08% as on December last, indicating that liquidity is still being hoarded.

Figure 2: US monthly Treasury Bill

The second watch is the TED Spread (i.e. Three-month Dollar LIBOR Minus Three-month Treasury Bills). It is a measure of perceived credit risk in the economy. This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. An increase in TED Spread is a sign that lenders believe the risk of default on inter-bank loans (also known as counterparty risk) is increasing. Inter-bank lenders, therefore, demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. On the hand, when the risk of bank defaults is considered to be decreasing, the TED Spread narrows. Since the TED Spread's peak of 4.65% on October 10, 2008, the measure has eased to 1.46% - a level last seen prior to the Lehman bankruptcy in September 2008.

Figure 3: LIBOR USD 3 Month - 3 Month Treasury Bills

Next

* Amar Ranu has done his B.E. (Electronics) from B. D. College of Engineering, Wardha, followed by MBA (Finance & Marketing) from Indian School of Mines University (ISMU), Dhanbad. Then came brief stints at Indian Institute of Banking & Finance as an Officer and at LIC Mutual Fund Asset Management Co. Ltd. as Relationship Manager (Business Development / Analysis). He is currently a student of Indian Institute of Capital Markets, Navi Mumbai.
Article posted on February 8, 2009.

MBA Jobs	MBA Preparation	B-Schools	MBA Forums	About CoolAvenues
Senior Mgmt Jobs	CAT / MAT/ CET	Dean talk	CAT Preparation	Post a Job
Finance Jobs	Admission Alert	B-School Profile	Executive MBA	Advertise with Us
Marketing Jobs	MBA Insider	B-School Diary	Career Help	Contact us
HR MBA Jobs	MBA Admission Process	Summer	GMAT	Privacy
Operations MBA Jobs	English Preparation	MBA News	Companies	Copyrights
IT MBA Jobs	MBA Abroad	MBA Events	B-Schools	About CoolAenues
Consulting MBA Jobs	CAT / MAT / CET test papers	MBA Placements	Summer Guidance
Resume Design Tips	MBA in India	Summers Guide	Classifieds

© All Copyrights exclusive with Zebra Networks
Part or full of the contents can not be published, copied or reproduced
in any form without the prior written exclusive permission of Zebra Networks. Pls refer to CoolAvenues Copyright section.