Libor Dollar Rate Jumps to Highest in Year; Credit Stays Frozen By Anchalee Worrachate and Gavin Finch
Oct. 9 (Bloomberg) -- The cost of borrowing in dollars for three months in London soared to the highest level this year as coordinated interest-rate reductions worldwide failed to revive lending among banks for any longer than a day. The London interbank offered rate, or Libor, for three-month loans rose 23 basis points to 4.75 percent today, the British Bankers' Association said. That's the highest level since Dec. 28. The Libor- OIS spread, a measure of cash scarcity, widened to a record 350 basis points. The overnight rate fell 29 basis points to 5.09 percent. That's still 359 basis points more than the Federal Reserve's target rate of 1.5 percent. ``To see little or no reaction in the fixings is very disappointing and reinforces the fact that Libor is broken and that the transmission mechanism from central banks isn't working,'' said Barry Moran, a Dublin-based currency trader at Bank of Ireland, the country's second- biggest bank. ``Things are still very stressed and we don't know what's going to fix it in the short term.'' The European Central Bank today offered banks as much cash as they need for six days at its benchmark rate of 3.75 percent, bringing forward new measures to soothe money markets. It also loaned banks a record $100 billion in overnight dollar funds, allotting most of the cash at 5 percent, down from 9.5 percent yesterday. `Holding Cash' South Korea, Taiwan and Hong Kong cut interest rates today, a day after reductions by central banks including the Federal Reserve and European Central Bank that were designed to stem damage from the global financial crisis. The U.K. government pledged yesterday to spend 50 billion pounds ($87 billion) to stave off a collapse of the British banking system. ``I don't see a wave of liquidity coming into the market,'' said Alessandro Tentori, an interest-rate strategist in London at BNP Paribas SA. ``People are still holding on to their cash because there's still a great deal of uncertainty out there.'' Interbank lending rates have climbed as financial institutions stockpile cash to meet funding expectations and remain wary central bank efforts to unblock markets will work. The three-month rate in euros held at a record high of 5.39 percent, the BBA said. Money-market rates rose today in Hong Kong, Singapore and Japan to the highest levels in at least nine months. Hong Kong's three-month interbank offered rate jumped 25 basis points to 4.4 percent, a one- year high. Singapore's comparable rate for dollar loans increased 19 basis points to 4.51 percent, the highest level since Jan. 8. Ted Spread The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to a record 412 basis points. ``Libor spreads are still wide, which suggest offshore banks are not willing to take more risks lending to other banks,'' said Cezar Bayonito, a liquidity trader at Allied Banking Corp. in the Philippines. ``Interest-rate cuts will be of little help in the near term because the issue is trust, not rates.'' Libor, set by 16 banks in a daily survey by the BBA at about noon in London, determines rates on $360 trillion of financial products worldwide, from home loans to derivatives. Member banks provide estimates on how much it would cost to borrow in 10 currencies for periods ranging from a day to a year. Overnight rates on dealer-placed commercial paper rose 56 basis points to 3.5 percent yesterday, while investors seeking a haven for their money pushed the yield on three-month Treasury bills down 15 basis points to 0.6 percent. Bill yields rose 3 basis points today, to 0.65 percent. To contact the reporters on this story: Anchalee Worrachate in London at [EMAIL PROTECTED]; Gavin Finch in London at [EMAIL PROTECTED] Last Updated: October 9, 2008 07:30 EDT --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
