Update on TED spread

TED spread, which is the difference between LIBOR and 3mo treasury bill, has narrowed to 1.33% today – a great improvement from all time high of 4-5% that it was around october. While this reflects lower percieved credit risk of lending to banks, it’s still very high compared to the normal average of 20-40 bps.

Also, I recently read about “convinience yield” on Treasury bonds. Little did I realize that it was something to do with special repo rates..yet to confirm but I’m guessing it’s the difference between Special and GC (general collateral) rates. When Treasury dept. issues new bonds, they trade at a slight premium compared to just-off-the-run securities due to higher percieved liquidity. This bestows the specialness.


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