Chap05 Pbms Mbf12E
Problem 5.6 The Ted Spread 2009
There are a number of different interpretations of the exact calculation of the TED Spread – the Treasury-Eurodollar Spread – but one common form is the difference between the 3-month U.S. Treasury bill rate and the overnight LIBOR rate. Date 3/12/09 3/13/09 3/16/09 3/17/09 3/18/09 3/19/09 3/20/09 3/23/09 3/24/09 3/25/09 3/26/09 Overnight USD LIBOR 0.33% 0.33% 0.33% 0.31% 0.31% 0.30% 0.28% 0.29% 0.29% 0.29% 0.29% 3-Month US Treasury 0.19% 0.18% 0.22% 0.23% 0.21% 0.19% 0.20% 0.19% 0.21% 0.18% 0.14% TED Spread 0.14% 0.14% 0.10% 0.09% 0.10% 0.11% 0.08% 0.10% 0.08% 0.10% 0.15% Date 3/27/09 3/30/09 3/31/09 4/1/09 4/2/09 4/3/09 4/6/09 4/7/09 4/8/09 4/9/09 4/14/09 Overnight USD LIBOR 0.28% 0.29% 0.51% 0.30% 0.29% 0.27% 0.28% 0.28% 0.26% 0.26% 0.27% 3-Month US Treasury 0.13% 0.12% 0.20% 0.21% 0.20% 0.20% 0.19% 0.19% 0.18% 0.18% 0.17% TED Spread 0.15% 0.16% 0.31% 0.09% 0.09% 0.07% 0.09% 0.09% 0.08% 0.09% 0.10%
a. Calculate the TED Spread for the dates shown. Spreads are calculated in table above. b. On which dates is the spread the narrowest and the widest? Over this brief period between March 12, 2009 and April 14, 2009, this spread reached a minimum of 0.07% on April 3rd. The maximum spread seen here is 0.31% on March 31, 2009, only six trading days previous to the lowest spread. c. Looking at both the spread and the underlying data series, how would you compare these values with the rates and spreads in problem 3? These TED Spreads are much, much smaller than what was seen in the early fall of 2008. Even the largest spread at 0.31% is nothing close in magnitude to the 6% spreads seen on selected days in September and October 2008. It is also interesting to note, however, that the underlying rates, both LIBOR and U.S. Treasury bill rates, are trading at incredibly low rates compared to most of modern U.S. dollar financial history. Note that on a number of dates the TED Spread itself is equal in magnitude or even larger than the T-Bill
There are a number of different interpretations of the exact calculation of the TED Spread – the Treasury-Eurodollar Spread – but one common form is the difference between the 3-month U.S. Treasury bill rate and the overnight LIBOR rate. Date 3/12/09 3/13/09 3/16/09 3/17/09 3/18/09 3/19/09 3/20/09 3/23/09 3/24/09 3/25/09 3/26/09 Overnight USD LIBOR 0.33% 0.33% 0.33% 0.31% 0.31% 0.30% 0.28% 0.29% 0.29% 0.29% 0.29% 3-Month US Treasury 0.19% 0.18% 0.22% 0.23% 0.21% 0.19% 0.20% 0.19% 0.21% 0.18% 0.14% TED Spread 0.14% 0.14% 0.10% 0.09% 0.10% 0.11% 0.08% 0.10% 0.08% 0.10% 0.15% Date 3/27/09 3/30/09 3/31/09 4/1/09 4/2/09 4/3/09 4/6/09 4/7/09 4/8/09 4/9/09 4/14/09 Overnight USD LIBOR 0.28% 0.29% 0.51% 0.30% 0.29% 0.27% 0.28% 0.28% 0.26% 0.26% 0.27% 3-Month US Treasury 0.13% 0.12% 0.20% 0.21% 0.20% 0.20% 0.19% 0.19% 0.18% 0.18% 0.17% TED Spread 0.15% 0.16% 0.31% 0.09% 0.09% 0.07% 0.09% 0.09% 0.08% 0.09% 0.10%
a. Calculate the TED Spread for the dates shown. Spreads are calculated in table above. b. On which dates is the spread the narrowest and the widest? Over this brief period between March 12, 2009 and April 14, 2009, this spread reached a minimum of 0.07% on April 3rd. The maximum spread seen here is 0.31% on March 31, 2009, only six trading days previous to the lowest spread. c. Looking at both the spread and the underlying data series, how would you compare these values with the rates and spreads in problem 3? These TED Spreads are much, much smaller than what was seen in the early fall of 2008. Even the largest spread at 0.31% is nothing close in magnitude to the 6% spreads seen on selected days in September and October 2008. It is also interesting to note, however, that the underlying rates, both LIBOR and U.S. Treasury bill rates, are trading at incredibly low rates compared to most of modern U.S. dollar financial history. Note that on a number of dates the TED Spread itself is equal in magnitude or even larger than the T-Bill