Short-term interest rates notch another downward day, week of progress

Posted Nov 7th 2008 10:17AM by Joseph Lazzaro
Filed under: International Markets, Financial Crisis

More progress on the credit market front.

The London rate for three-month loans in dollars declined for the 20th consecutive day, dropping another 10 basis points to 2.29%. However, the three-month rate is still 129 basis points 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 9 basis points to 174 basis points, which is down from 383 basis points on October 10.

However, the TED spread was 87 basis points before the Lehman Brothers bankruptcy, and the current rate is still 163 basis points above the 11-basis-point, five-year average.

Economist Peter Dawson said credit markets have notched another good week. "It was another week of progress, with rates consistently heading lower, but more work remains," Dawson said. "Bank confidence is increasing, but it's not where it should be. More must be done by governments to remove toxic assets from banks and from the financial system to encourage more banks to lend."

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: Credit markets continue to trend in the right direction -- down -- and have notched another week of progress. Still, more action is needed to remove toxic assets from the system -- something that will increase bank confidence by improving their balance sheets.

Tags: banking system, banks, bond market, credit markets, economy, interest rates, inthenews, LIBOR

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Reader Comments (Page 1 of 1)

11-07-2008 @ 3:31PM

Kent said...

I more worried now about staflation (negative growth in spite of low interest rates and prices) than I am of a recession. It is reported that lending institutions are short on finding clients willing to take out loans. Recessions can be worked on in short-order, but if the consumers and borrowers are eschewing spending it means it will linger for years; not months.