The LIBOR-OIS spread remains frustratingly high, signalling continued apprehension in the credit markets.
The LIBOR-OIS spread is used by economists and financial analysts as a measure of the availability of cash among banks. The higher the spread, the fewer available dollars. The London Inter-Bank Offered Rate (LIBOR) is the interest rate that banks charge each other for three-month loans in U.S. dollars. The rate is set by a panel of banks in a survey by the British Bankers’ Association each day around noon in London. LIBOR is also used as a benchmark for approximately $360 trillion of financial products across the globe. The overnight indexed swap (OIS) rate is an interest rate swap transaction in which the overnight rate is exchanged for a certain fixed rate.
The spread currently stands at 1.01, and it has remained above one percentage point since Feb. 19, after falling below that threshold on Jan. 12 and staying there for almost six weeks. The chart below shows the history of the spread over the last year.
TED Spread
The TED Spread, which is the difference between what the government and companies pay for three-month loans, also remains elevated after recently showing signs of improvement. It rose to 103 basis points (1.03 percent), compared with 94 basis points (.94 percent) on Feb. 13, 2009, and a record high of 464 basis points (4.64 percent) on Oct. 10, 2008. The gap averaged 27 basis points (0.27 percent) from 2002 through 2006, before the credit crisis began in 2007.
The chart below reflects movement in the TED Spread over the last year.
Gregg D. Killoren
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