Interest Rate Roundup

Wednesday, September 17, 2008

Credit market pandemonium

Not to incite panic or anything. But the credit markets are absolutely coming unglued this morning. A few examples:

* LIBOR rates are surging. For instance, three-month U.S. LIBOR jumped almost 19 basis points today after rising 6 bps yesterday. At 3.06%, it is well above the federal funds rate of 2%.

* The yield on the 3-month Treasury Bill is plunging -- to just 0.28% from 0.69% yesterday and 1% the day before that. This is the lowest T-Bill rates have been since at least 1954.

* A major U.S. money market fund -- Reserve Primary Fund -- "broke the buck." This is the oldest fund of its type, and shareholders yanked more than 60% of the fund's $64.8 billion in assets after losses on Lehman debt forced its net asset value below the $1 level.

* The TED spread - the difference between the yield on three-month Treasury bills and three-month LIBOR -- blew out to 280 basis points, the highest level since the 1987 stock market crash.

* 2-year swap spreads have exploded -- recently up 21 basis points to 128. This is the highest level since at least 1988 (the farthest back my data goes -- see chart above).


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