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TED on FRED

There are many TEDs, but the TED in FRED is a spread. That is, the spread between the 3-month LIBOR and the 3-month Treasury bill.

A little background: LIBOR is the rate banks would charge each other for lending, which can be used to measure economy-wide credit risk. Treasuries are basically the safest assets on the market. So, a large TED spread would indicate a lot of credit risk in the U.S. economy.*

But how large is a typical TED spread? At the time of this writing, it looks like it’s about 30 to 40 basis points (0.3 to 0.4%), which is mid-range for recent years. It was up to 57 basis points in 2012 and below 20 on several occasions. A longer historical perspective shows that in times of crisis the TED spread really rises. Use the slider below the graph to change your sample period: The October 1987 stock market crash raised TED spreads close to 300 basis points, and the financial crisis of 2008 raised them to 450 basis points. Considering the whole sample, current conditions actually look pretty good.

*A side note: The TED spread is always going to be positive unless the risk on Treasuries increases much more than what current credit conditions warrant. This scenario could be caused by an increased risk of (partial) default by the U.S. government while credit conditions for U.S. banks remain unchanged. That’s unlikely to happen.

How this graph was created: Search for “TED spread” and you have your graph.

Suggested by Christian Zimmermann

View on FRED, series used in this post: TEDRATE

Dating the financial crisis using fixed income market yield spreads

How would you answer the question, “When did the Great Financial Crisis begin?” Some date the beginning of the crisis according to the events surrounding the failure of Lehman Brothers in mid-September 2008. But at that point, financial markets had already been in turmoil for more than a year, as certain time series from the summer of 2007 show. So how do you date the crisis?

One way to date the recent financial crisis is to identify significant breaks in the dynamics of yield spreads from U.S. fixed income markets (thought to be at the core of the crisis) using appropriate statistical techniques, like I do in a forthcoming article (working paper version) along with coauthors Massimo Guidolin and Pierangelo De Pace. With a particular definition of financial crisis in mind, this procedure allows us to identify the weeks of August 3, 2007, and June 26, 2009, as the beginning and the end of the crisis, at least from the perspective of fixed income yield spreads.

While some of the spreads we use are based on proprietary data, several can be constructed from FRED data. In the graph, we plot the spread between Moody’s seasoned Aaa corporate bond yield and Moody’s seasoned Baa corporate bond yield, as well as the spread between the 30-year fixed-rate mortgage average in the United States and the 30-year Treasury constant maturity rate.

Even just eyeballing the graph gives a sense of the degree of comovement of these spreads at least for the period beginning in 2007. Moreover, the spreads show an upward shift in their level approximately in the second half of 2007 as well as a downward shift approximately in mid-2009.

How this graph was created: In FRED, enter “Moody’s” in the search box. This will return a few Moody’s series: I first selected the Baa corporate bond yield and then added the Aaa corporate bond yield. The spread is then the difference between the two: a-b. A similar transformation was applied to the 30-year Treasury constant maturity rate and the 30-year fixed-rate mortgage average in the United States.

Suggested by Silvio Contessi

View on FRED, series used in this post: AAA, BAA, DGS30, MORTGAGE30US

Where retail sales have been booming

Sporting goods, home project supplies, and groceries are way up

We recently discussed how some areas in the retail sales sector have suffered dramatic declines during the pandemic. Today, we highlight three areas where sales have actually been booming.

FRED just added monthly state retail sales data from the Census Bureau, and we can enlist the help of GeoFRED to show the details. In the first map, we see that sporting goods, hobby, musical instrument, and book stores have been doing remarkably well across the nation. From July 2019 to July 2020, national sales increased 18.7%, with a range of 7.7% to 29.1% across states. People have curtailed some activities during the pandemic, but they added new ones to spend their time on.

The second map shows building material and garden equipment stores, and it looks like people have ramped up their home projects. Nationwide, these sales increased 16.3%, with a range of 12.6% to 21.1% across almost all states, which is a remarkably tight spread. (We exclude our home state of Missouri, which had only a 4.6% increase.)

The third bright spot we focus on here is food and beverage stores. If you’re a regular reader of this blog, you may have expected this, since we’ve discussed how restaurant and bar sales have diminished as people have switched to consuming their food and drink at home. The map below shows how this shift has differed across states: from a 4.4% increase to a whooping 23.3% increase, which is remarkable for basic commodities. (One notable exception is a decline in Vermont.) Nationally, sales of food and beverages went up 13%. People may not have consumed much more than usual, but they did it differently—at home.

How these maps were created: A good starting point is the release table for monthly state retail sales. Click on a state series and then navigate below the graph to the related material, which includes a link to the GeoFRED map. (Or you could click on “View Map” on the graph and then “Edit Map”). Zoom-in or -out as you wish.

Suggested by Christian Zimmermann.



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