Wednesday, 15 October 2008

LIBOR falls

US stocks gave up some gains yesterday but the good news is that LIBOR is pulling back. Bloomberg reports:

Money-market rates in London fell after the U.S. joined the U.K., Germany and France in offering to buy stakes in banks to restore confidence in the global financial system.

The London interbank offered rate, or Libor, that banks charge each other for three-month dollar loans slid 12 basis points to 4.64 percent today, the biggest drop since March 17, according to the British Bankers' Association. It was at 4.82 percent on Oct. 10, the highest level since December. The three- month euro rate fell 7 basis points to 5.23 percent, the largest decline since Dec. 28.

In the meantime, Treasury yields are rising.

Treasuries fell, sending two-year yields up by the most in two weeks, as the U.S. government prepared to buy stakes in banks battered by the credit-market crisis.

The fifth straight daily decline for 10-year notes pushed their yields to the highest level since Aug. 6 as corporate bonds gained, led by financial firms, reducing demand for the safety of government debt. Three-month bill rates rose 9 basis points to 0.27 percent as investors sold shorter-maturity debt.

That's despite expectations for further rate cuts from the Fed.

Futures on the Chicago Board of Trade show 100 percent odds the Fed will cut its 1.5 percent target rate for overnight bank loans by at least a quarter-percentage point at its Oct. 29 meeting.

The Bank of Japan, though, still hasn't moved on interest rates despite yesterday's extraordinary meeting.

The BOJ board held the key overnight lending rate at 0.5 percent in a unanimous vote. The bank didn't participate in last week's joint rate cut by central banks in North America and Europe, saying Japan's borrowing costs are already "very low."

But it did announce other measures to alleviate the financial crisis.

The Bank of Japan said it will offer lenders as many dollars as they want, joining European counterparts in attempting to lower borrowing costs in money markets and freeing up credit worldwide.

The central bank will provide dollars at fixed interest rates for an "unlimited amount against pooled collateral," it said in a statement late yesterday. It also announced measures to improve companies' access to cash, expanded the range of Japanese government bonds it accepts from lenders, and suspended a program of selling shares it bought from banks between 2002 and 2004.

Alternatively, those who desperately need US dollars can always try asking the Chinese. From Bloomberg:

China's foreign-exchange reserves rose to a world record $1.906 trillion, helping to strengthen the nation's finances as the credit crisis threatens to trigger a global economic slump.

Currency holdings rose 32.9 percent at the end of September from a year earlier, the People's Bank of China said on its Web site today. The increase of about $97 billion over the quarter was down from a $126.6 billion gain in the previous three months.

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