TED Spread

CFA Level II Fixed Income
#1

There is a question in the CFA book that I do not get;

If the three-month T-bill rate drops and the Libor rate remains the same, the relevant TED spread:

  1. increases.
  2. decreases.
  3. does not change.

A is correct. The TED spread is the difference between the three-month Libor rate and the three-month Treasury bill rate. If the T-bill rate falls and Libor does not change, the TED spread will increase.

My question is that, is not the libor the floating leg and the T-bill is the fixed leg. abidding with this assumption, when the fixed leg decreases the spread will decrease. Am I right!

#2

TED Spread = LIBOR - T-Bill rate If T-Bill rate drops, TED Spread increases. You’re thinking way too much into this lol.

#3

Thanks! maybe yes :smiley: