The London rate for three-month loans in dollars declined for the 18th consecutive day, dropping another 20 basis points to 2.51%. However, the three-month rate is still 151 basis point above the U.S. Federal Reserve's target interest rate. Further, the five-year average for the three month rate is 22 basis points.
Also, the difference between what banks and the U.S. Treasury pay to borrow dollars for three months, the TED spread, fell another 19 basis points to 192 basis points, which is down from 383 basis points on October 10.
Still, the TED spread was 87 basis points before the Lehman Brothers bankruptcy. Economist Peter Dawson said the difference between current credit market rates and the historical averages indicate both progress and how much work remains.
"Rates have come down a long way but they're still not where we need them to be," Dawson said. "In addition, the mood among banks remains cautious. That suggests continued suspicion about balance sheets, which is why we'll need more toxic asset purchases by governments and increased transparency."
The LIBOR is particularly important because it determines rates on $360 trillion of financial products worldwide, from home loans to derivatives.
U.S. and European governments have now pledged as much as $3.6 trillion to unfreeze credit markets, meet demand for dollars, and recapitalize banks.
Economic Analysis: As economist Dawson noted, credit market progress is about half way on the journey to a normalized market. Hence, along with liquidity measures, major governments must proceed with selected toxic asset purchases and regulation reform to clean up balance sheets and increase interbank confidence.
Closing Bell: When the unemployed govern the markets (AIG, DSCO, FSLR, TIVO)
Still gloomy -- another 467,000 jobs lost last month
Cramer on BloggingStocks: This market knows something we don't 
