Short-term interests notched a mixed day on Monday, as the London rate for three-month loans in dollars declined for the 24th consecutive day, dropping another 6 basis points to 2.24%.
However, the three-month rate is still 124 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. In addition, the overnight rate, or LIBOR, rose 2 basis points to 0.35%.
Also, the difference between what banks and the U.S. Treasury pay to borrow dollars for three months, the TED spread, fell another 6 basis points to 170 basis points, which is down from 387 basis points on October 10.
However, the TED spread was 87 basis points before the Lehman Brothers bankruptcy, and the current rate is still 159 basis points above the 11-basis-point, five-year average.
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: Although credit markets continue to trend in the right direction -- down -- the progress is about half-way on the journey to normalized markets. Further, 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.