The TED spread, the spread between US three-month, Libor and Treasury bill yields, finished the week at 218 basis points. At its widest in early October, it reached almost 450 bps as Libor was more than 4.8 per cent and Treasuries were yielding just 0.35 per cent. Almost a month later to the day, the TED spread reached its narrowest point of 174 bps before starting to move wider again, as concerns again mounted over the health of the US economy. However, the TED spread is perhaps not a particularly useful measure now. Libor yields have certainly come down from their recent peak but this is more a function of the direction of global interest rates overall, and the number of reductions to official cash rates that have been implemented over that same period. The telling measure of the level of anxiety in financial markets now is simply the yield on three-month US Treasury bills, which on Wednesday fell as low as 0.33 bps or 0.0033 per cent.The situation in Australia is very similar. The spread between three-month bank bills and overnight index swaps closed at 81.5 bps on Friday. This is down from its widest point of 112 bps (reached when the TED spread was at its widest) but up from the low of 33 bps, also reached a little more than a month later. But perhaps more telling for the Australian market is the spread between the 90-day bank bill rate and the official cash rate, which is now negative (and which anticipates further, steep cuts in the cash rate, including one this week) and in fact reached minus 82 bps at the end of the week before last. A negative gap of this size has not been seen since mid 1992.Systemic liquidity is no longer the key issue driving financial markets. Rather, it is being overtaken by fear of the perilously declining health of the US economy and, by implication, the global economy, and the equity markets confirm this. Last week we saw a relief rally but there is still a long way to go.