 The TED spread is an indicator of perceived credit risk in the general economy, since T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks.An increase in the TED spread is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing.Interbank lenders, therefore, demand a higher rate of interest, or accept lower returns on safe investments such as T-bills.