Ted spread is the difference between the interest rate offered by the United States government on short-term (3 months) Treasury bills and the LIBOR. LIBOR is the interest rate at which the banks borrow from each other. The investors use the TED spread as a measure of risk to assess the level of risk an investment opportunity poses that is above the risk-free rate (return on T- bills) but below the LIBOR.
If the ted spread increases it means that the default risk is higher. This means that the inter banks loans will be available at higher rates and ultimately the banks will switch to government lending to be safe.
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