A new paper by John Taylor and John Williams takes on the issue of which spread to look at, and why. They look at the OIS-Libor spread, which as they say gets the pure expectations effect:
They also look at the spread between Libor and interbank loans secured by collateral, which would get at any further fears about default (the reason I have tended to look at the TED spread). Their picture shows why the Fed prefers the OIS spread: secured loans have historically been noisy, due to “technical factors such as tax considerations and collateral delivery
glitches.” But FWIW, this spread looks even worse than OIS:
Taylor and Williams aren’t too happy with the results of Fed interventions so far.
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