Interest Rate Roundup

Tuesday, October 07, 2008

The latest on LIBOR, rate cuts, and other efforts to fight the credit crisis

It's a busy day on the global markets front. So let's get right to the news ...

* U.S. dollar LIBOR rates generally rose again, with 3-month LIBOR up 3 basis points to 4.32%. That is just shy of last Friday's cycle high of 4.33%. Overnight LIBOR jumped to 3.94% from 2.37%, though that is still below the cycle peak of 6.88% on 9/30. 6-month LIBOR, for its part, dipped to 4.02% from 4.05%. The TED spread, another indicator of credit market stress, is slightly below its recent peak -- 3.72% as I write versus a 10/3 high of 3.87%. Two-year swap spreads are down to 136 bps or so, versus a recent peak of 167 on 10/2.

* In the overseas markets, Australia's central bank lopped a full percentage point off its benchmark short-term interest rate. The Reserve Bank of Australia's cash rate target dropped to 6% from 7%, the biggest cut since 1992. In the U.K., the Bank of England announced it will hold dollar loan auctions to help ease market stress. Policymakers there are also discussing injecting $79 billion into leading U.K. banks. Meanwhile, in Europe, the European Central Bank lent a whopping $339 billion to banks in its latest weekly auction, the most since December 2007.

* And of course, the speculation here is that the Federal Reserve will come riding to the rescue with another big interest rate cut. The funds rate target is currently 2%, down from 5.25% last summer before the credit crisis got underway. It might come too late for Iceland, where the government is trying to get more than $5 billion in loans from Russia to save itself ... and where the government just had to seize Landsbanki Islands hf, the country's second-largest bank.


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