Explain the short-term rate spreads that serve as gauges of credit and liquidity risk across the economy

Short-term spreads set a rate carrying bank credit and liquidity risk against one carrying little. The classic measures were built on Libor, which has been discontinued: the TED spread, three-month Libor minus the three-month Treasury bill yield, and the Libor–OIS spread, which strips out expected policy rates because the overnight indexed swap rate tracks the expected overnight rate. The same idea now uses rates still published, such as an unsecured bank or commercial paper rate against OIS or against a secured overnight rate like SOFR. When such a spread widens while policy expectations are steady, lenders want more to lend unsecured, which signals stress. A widening of the spread over OIS is not a sign of higher expected policy rates.