--- title: "TED Spread: Formula, Meaning & Signals" description: "The difference between the 3-month USD LIBOR rate and the 3-month Treasury bill rate. It was used as a gauge of perceived credit risk in the banking system...." canonical: https://www.getswoopr.com/indicators/fixed-income-and-credit/ted-spread/ source: "Swoopr Investment: https://www.getswoopr.com" --- ## Direct Answer > The difference between the 3-month USD LIBOR rate and the 3-month Treasury bill rate. It was used as a gauge of perceived credit risk in the banking system. LIBOR has been discontinued, so the classic series is historical. # TED Spread: Formula, Meaning, Signals, Examples and How to Use It ## How Is TED Spread Calculated? The difference between the 3-month USD LIBOR rate and the 3-month Treasury bill rate. It was used as a gauge of perceived credit risk in the banking system. LIBOR has been discontinued, so the classic series is historical. **Formula:** `TED spread (bp) = (3-month USD LIBOR - 3-month Treasury bill rate) x 100` **Inputs:** - 3-month USD LIBOR (percent) - 3-month Treasury bill yield (percent) - Same observation date **Worked example.** A 3-month LIBOR of 3.10% and a 3-month bill rate of 2.65% give a TED spread of 45 basis points. The inputs are illustrative numbers, not market data. **Reading it.** A wider TED spread meant banks were seen as riskier relative to the U.S. government, often alongside a flight to Treasuries. A narrow spread meant calm funding markets. **Limits.** The measure cannot be reproduced after LIBOR's end, and replacements using SOFR or bank credit-sensitive rates are not equivalent. The T-bill leg also moves on its own supply and flight-to-quality demand. ## What is TED Spread? The difference between the 3-month USD LIBOR rate and the 3-month Treasury bill rate. It was used as a gauge of perceived credit risk in the banking system. LIBOR has been discontinued, so the classic series is historical. ## How to use TED Spread A wider TED spread meant banks were seen as riskier relative to the U.S. government, often alongside a flight to Treasuries. A narrow spread meant calm funding markets. A reading alone is never a buy or sell signal; it needs context from price structure, volume, volatility and the broader market regime. ## Strengths - Using a Treasury bill as the risk-free leg and a bank rate as the risky leg gives one number that tracks the bank-versus-government gap. - Both legs are 3-month rates in percent, so the spread is easy to compute from daily data and to chart over long periods. - Reproducible when the formula and data convention are fixed. ## Weaknesses and limitations - The spread mixes unsecured bank lending with Treasury yields, which differ in tax treatment and collateral use, so not all of the gap is credit risk. - The measure is a US dollar banking gauge, so strain concentrated in non-bank or non-dollar funding markets does not show up. - Correlated indicators can create false confidence by repeating the same underlying information. ## Editorial and risk note This page is educational content, not individualized investment advice. It should not imply guaranteed prediction, accuracy or outperformance. ## Frequently Asked Questions Is TED Spread a buy or sell signal? No. A wider TED spread meant banks were seen as riskier relative to the U.S. The measure cannot be reproduced after LIBOR's end, and replacements using SOFR or bank credit-sensitive rates are not equivalent. A trade built on it still needs a trigger, an invalidation rule, a position size and realistic execution assumptions. What is the best setting for TED Spread? TED Spread is computed from 3-month USD LIBOR (percent); 3-month Treasury bill yield (percent); same observation date, so the choices that matter are the data convention and the window it is read over. Test those across instruments, regimes and out-of-sample periods instead of fitting one historical winner. Can TED Spread be used by itself? The measure cannot be reproduced after LIBOR's end, and replacements using SOFR or bank credit-sensitive rates are not equivalent. The T-bill leg also moves on its own supply and flight-to-quality demand. For that reason it is read next to measures of direction, participation, valuation, liquidity and risk, not alone. Does TED Spread work on every timeframe? The calculation (TED spread (bp) = (3-month USD LIBOR - 3-month Treasury bill rate) x 100) can be run on any bar size, but behavior is not portable: a reading on a five-minute chart describes a very different market window from the same reading on a daily chart. Validate the exact timeframe before relying on it. Why does TED Spread give false signals? The spread mixes unsecured bank lending with Treasury yields, which differ in tax treatment and collateral use, so not all of the gap is credit risk. The measure is a US dollar banking gauge, so strain concentrated in non-bank or non-dollar funding markets does not show up. Lag, noise and regime changes add to this, because market participants react to new information after the reading is calculated. How should TED Spread be backtested? Rebuild TED Spread from 3-month USD LIBOR (percent) using point-in-time data, write the rules before testing, include delisted securities where relevant, model realistic fills and costs, reserve a validation sample and compare with a simpler baseline. ## References - [FRED, Federal Reserve Bank of St. Louis: TED Spread (DISCONTINUED) (TEDRATE)](https://fred.stlouisfed.org/series/TEDRATE) S Swoopr Editorial Team The Swoopr Editorial Team produces independent investment education, research, and tools for understanding markets, evaluating opportunities, and managing risk. All content is educational only and does not constitute personalized investment advice. See our [editorial policy](https://www.getswoopr.com/legal/editorial-policy/) and [corrections policy](https://www.getswoopr.com/legal/corrections-policy/).