TED Spread

The TED(Treasury bill to Eurodollar) spread  is the price difference between three-month fT-bill interest rate and three month LIBOR.

The TED spread reflects market perception of risk.The TED spread is usually small, but in times of financial turbulence, the TED spread shoots up. During times of financial stress, investors flock to what is perceived as risk-free treasury bills, and flock away from what is perceived as riskier Eurodollars, which are thought to reflect lending to commercial banks. The TED spread decreases and is low when credit risk is perceived to be low.