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I'm stuck on how to estimate the credit (counterparty) risk in interbank lending in the Australian market. TED spread is usually measured as the difference between the LIBOR rate and the T-bill rate. However, when I use the same framework to calculate the Australian TED spread, it is often negative. I use two methods: 1. 3-month BBSW (bank bill swap rate) - 3-month bank bill rate (or cash rate) 2. 3-month LIBOR in Australian Dollar - 3-month bank bill rate (or cash rate)

The negative value definitely makes no sense as the former should always be larger than the risk-free rate.

Can anyone illuminate how this works? or did I use the wrong proxy?

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it is measured by the swap spread, the difference between the 3-month bank bill swap rate (BBSW3M) or 3-month bank bill rate and the 3-month overnight indexed swap rates (OIS3M) captures the inherent bank credit risk and therefore funding liquidity in the inter-bank lending market.

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