Jesse's Café Américain: Demystifying the TED Spread: "18 April 2008
Demystifying the TED Spread
TED is an acronym for Treasury and EuroDollar.
A Spread is just the difference or 'distance' between one thing and another.
Eurodollars are bank deposits denominated in U.S. dollars but held at locations outside of the U.S. Initially, the term only referred to dollar deposits in London but has been expanded to include dollar deposits at any offshore location. The deposits may be held by the foreign branches of U.S. banks or by non-U.S. banks. Eurodollar deposits may be Eurodollar certificates of deposit or simply Eurodollar time deposits.
T bills are US Treasury debt of short duration are considered to be risk free.
TED Spread = Yield on Eurodollar deposits - Yield on T Bills...."
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