Ted Spread (redirected from Ted Spreads)

TED spread

Difference between US Treasury bill rate and Eurodollar rate; used by some traders as a measure of investor/trader anxiety or credit quality.

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Ted Spread

A measure of credit risk, calculated by subtracting the price of three-month U.S. Treasury securities and three-month eurodollar contracts. These contracts must have the same expiration month. Because Treasury securities are risk-free and eurodollar contracts are not, an increased Ted spread indicates a greater likelihood of default.

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TED spread

The price spread that occurs when opposing transactions are made in Treasury bill futures and Eurodollar futures as, for example, a long position in Treasury bill futures coupled with a short position in Eurodollar futures. A long spread that anticipates the price spread between the two contracts will widen could involve buying a T-bill future and simultaneously selling a Eurodollar future. A short spread in which a Eurodollar future is purchased and a T-bill future is sold short would anticipate a narrowing of the price spread.

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Ted Spread

What Does Ted Spread Mean?

The difference in price between three-month futures contracts for U.S. Treasuries and three-month contracts for Eurodollars with identical expiration dates.

Investopedia explains Ted Spread

The Ted spread is used as an indicator of credit risk because U.S. T-Bills are considered risk-free whereas the rate associated with Eurodollar futures is thought to reflect the credit ratings of corporate borrowers. As the Ted spread increases, default risk is considered to be increasing and investors will have a preference for safe investments. As the spread decreases, the default risk is considered to be decreasing.

Related Terms:
• Credit Spread
• Currency Swap
• Futures
• Interest Rate Swap
• U.S. Treasuries