Credit Spreads

Libor-OIS Spread

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 has improved dramatically from the height of the credit crisis.  As of October 2, 2009, the spread is .13 percent.

TED Spread

The TED spread, which is the difference between what the government and companies pay for three-month loans.  It has recently dropped back towards its historical average since hitting 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.  As of October 2, 2009, the spread is at 19.68 basis points.

Key Interest Rates

LIBOR

To view current and historical LIBOR rates, please see the British Bankers’ Association website by clicking on the following link: http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=141&a=627.