Friday, October 17, 2008

TED Spread and VIX Both Coming Back to Earth?

It remains to be seen whether yesterday’s new high of 81.17 in the VIX turns out to be the top in that index. Personally, I think there is a good possibility that 81.17 holds up for many years, but I also believe that it is even more likely that the TED spread (which measures the difference between LIBOR rates and the yield on the 3 month U.S. T-Bill) high of last Friday will mark the maximum point of atherosclerosis in the credit markets.

In the graphic below, courtesy of Bloomberg, you can see that the TED spread has already pulled back about 14% from the October 10th high.

Even a slow thaw in the credit markets and in equity volatility should be a sign that the global economy is turning the corner. In fear and panic there is opportunity; and as we turn the corner, the opportunities are greatest.

[source: Bloomberg]


Luther S. Ott II said...
This comment has been removed by the author.
Luther S. Ott II said...

On The Hunt: As the hype goes up, the tide always turns.

Couldn't agree more. Love your postings.


Eric Holthaus said...

although i agree the ted spread is probably coming down for real now (at least in the short term), we had a record high vix close today. bottom line, i think we're going to be in an ambiguous spot for the next few weeks until some facet of the economy shows some leadership. maybe ted spread below 3 will do that in a week or so.

Anonymous said...

If the normal level is 1%, it doesn't matter if it drops from 10% to 8%. It is still VERY high!

Eric Holthaus said...

ted spread RT: 3.05

that's down about 35% from the high of 4.63 on 10/10. 35% cheaper lending rates is going to make a LOT of difference to free up credit for banks doing business with each other - even if the rate is still historically 3x high.

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