It's report season comming to US banks. They will sure show some...

It's report season comming to US banks. They will sure show some cracks in their profits in January 2016.

In May 2015 some of US major banks were fined by US SEC because they rigged into Lipor rate in order to showcase their good balance sheets.

US banks are the good guide for the US financial health. If there's a crack then Gold will surge higher and higher. IMO

• MARKETS

Stock Market: A Bad-News Barometer Flashes Red
‘TED spread’ widening, but benign factors could explain shift

ENLARGE
The TED spread, traditionally viewed as a sign of financial instability, moved sharply in the final weeks of 2015 and is at its highest level since 2012. PHOTO: ASSOCIATED PRESS
By
BEN EISEN
Jan. 10, 2016 11:08 a.m. ET
2 COMMENTS
A bad-news barometer from the financial crisis is once again flashing warning signs.

The latest surge, however, may not be an indicator of panic in the financial system.

The so-called TED spread, which climbed rapidly at the beginning of 2007 and stayed elevated for two years, is traditionally viewed as a sign of financial instability.

The spread moved sharply in the final weeks of 2015, nearly doubling from its Dec. 8 level of 0.21 percentage points. It’s now at 0.41 percentage points. That’s its highest level since 2012, when markets were pressured by fears of a sovereign-debt crisis in Europe.

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The acronym TED was derived from the words Treasurys and Eurodollars, which are dollar-denominated bank deposits located outside the U.S.

Like anything that measures the difference between two gauges, the TED spread tells two stories. On one side is the three-month U.S. Treasury bill, which is trading at a rate of about 0.20 percentage points, according to Tradeweb. On the other side is the 3-month interbank lending rate, a measure of commercial lending, which has risen to 0.62 percentage points.

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One piece indicates the credit of the federal government and the other is based on the credit of lenders. When the spread between the two widens, it can signal trouble in the banking system. A narrow spread indicates banks regard short-term loans to other banks to be nearly as safe as lending to the government.

At less than half a percentage point, the TED spread is still quite below levels seen during the financial crisis. In 2008, for example, it reached 4.58 percentage points, according to Federal Reserve data. Back then, economists like Paul Krugman were writing about it with exclamation points.

The recent surge might not warrant such punctuation—at least not yet. The T-bill rate has been held down in part by an imbalance between supply and demand as new regulations push investors into this part of the market.

One is leading transactions on more securities to go through clearinghouses, which require collateral like T-bills, according to Jerome Schneider, head of the short-term and funding desk at Pimco. The result is that “demand in the very front end hasn’t recalibrated to higher yield levels,” he said.

At the same time, money-market funds, which are faced with fresh requirements meant to safeguard them from runs during market upheaval, are changing in composition. Investment companies like Fidelity Investments are shifting some prime funds, which can own commercial paper, to government funds. That adds to demand for T-bills while alleviating downward pressure on Libor, according to Gennadiy Goldberg, a U.S. rates strategist at TD Securities.

Meanwhile, Libor rose, as expected, when the Federal Reserve raised its key interest rate for the first time in nearly a decade last month. When the Fed’s rate rises, a number of other benchmarks around the world generally do as well.

So the TED spread’s surge is a mechanical result of its two components moving in different directions for reasons mostly unrelated to the creditworthiness of banks. Treasury bill yields are down, Libor is up, so the TED spread is up too.

Yet even if factors other than financial stress are driving the move in the TED spread, there is an inkling of unease. Recent turbulence in the credit markets, which during one day last month pushed the junk bond market down the most in four years, has many investors on edge.

While the junk-bond market has mounted a slight rebound, fears of weakening credit persist. If the spread stays wide, or gets wider, it could signal more trouble ahead, according to David Ader, head of government bond strategy at CRT Capital Group.

“In that case, we are talking more of a generic credit concern or bank concern,” he said.