For those of you who like to have a proverbial leg up on the competition by understanding what's going on in the market, this one's for you.
If you don't care about financial news and turn off the radio when the market reports come on, stop reading.
I've been hearing news announcers mention the TED spread recently as a favored market measurement device used by people like Ben Bernanke (Federal Reserve Chairman) and Henry Paulson (Treasury Secretary). But I'll be the first to admit that even as I'm about to receive my finance degree, I had no idea what it was.
A little Google search here, a little Wikipedia there, and I've come up with the answer.
The purpose of the TED spread is to measure the difference (spread) between the 3-month T-bill and the LIBOR. Its name is a merger of the terms "T-bill" and "Eurodollar" (whose ticker symbol is ED). Its job is to give some idea of what the market is feeling about risk. A large TED spread means that banks are feeling risk-averse, and a small one means "bring on the risk, baby!"
Some experts like to track the TED spread and use it to predict what's going on in the marketplace. Some claim certain trends, such as a large spread is often followed by months of growth.
I'm happy enough just knowing what they're talking about, and I'll leave the analysis to the experts.
Cyara Pott - Market Specialist
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