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Thursday, October 23, 2008

Crisis watch, 23 October

TED spread 2.54
S&P 500 returns -6.1%
VIX 69.65
Nikkei 225 (9:54 AM IST) -6.82%
US Financials index -6.74%
ICICI Bank ADR -15.2%
Call rate on 22nd 6.11%
Currency futures (9:55 AM IST)49.94


  1. Sir
    Is the TED Spread as important as it is made out to be? Shouldn't we be looking at the volumes of overnight interbank lending instead of being fixated on rates?

    In late 2006/early 2007, call rates shot up to nearly 80% if memory serves me right. That would be equivalent to a TED spread of well ove 70. Yet, it is not as if credit markets collapsed in India because of this. Also, since we're looking at annualized rates, even small increases in risk premium charged on short term loans will get amplified in the annualized figure. What's your take?

  2. The risk premium would be in rates and not quantities. We aren't that worried that banks aren't lending to each other. We are really worried that banks don't trust each other.

    The Indian call rate is not such a good comparator because in India, the operating procedures of monetary policy aren't properly formulated. Abroad, that's not an issue. The only reason for LIBOR to exceed r_f is risk premia.


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