On April 5, 2008 I noted that the one-month LIBOR was 2.68% as follows:
http://natgagu.blogspot.com/search/label/Bear%20Stearns
Today it is .34%
Showing posts with label libor. Show all posts
Showing posts with label libor. Show all posts
Monday, January 12, 2009
Wednesday, November 19, 2008
Wednesday, October 1, 2008
Washington Post on Libor
Mutual Distrust Freezes Lending Among Banks
By Neil IrwinWashington Post Staff WriterWednesday, October 1, 2008; D01
At the core of the financial crisis is a simple problem: Banks don't fully trust each other. So they hoard cash and only lend to each other if the borrowing bank pays enough to justify the risk.
The best indicator of the simmering interbank distrust is an obscure-sounding interest rate known as Libor, which is flashing red. Libor, or the London interbank offered rate, is the rate that banks worldwide charge each other for short-term loans.
Yesterday, the annualized rate for those overnight loans spiked by more than four percentage points, to 6.9 percent, its highest level ever. Normally, Libor on dollar loans is not much higher than what it costs the U.S. government to borrow short-term money, which yesterday was nearly zero.
That tells experts that banks around the world are basically unwilling to lend to each other at any price. It means that cash is not flowing to places that need it. And, if sustained, would ultimately lead to higher borrowing costs for ordinary U.S. households and businesses.
"The interbank markets are a fundamental part of the plumbing of the financial world," Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said in a speech yesterday. Many variable-rate mortgages, corporate loans, and other forms of debt adjust relative to Libor.
"This contraction in availability and rise of the cost of credit have worsened . . . for corporate and business borrowers," Lockhart said. "We've heard anecdotes confirming this from contacts throughout the Southeast. In short, Main Street is being affected."
When the Federal Reserve lowers the interest rate it directly controls, it helps stimulate the economy. But the rise in Libor, economists say, is likely to have the opposite effect, slowing the economy at the worst possible time.
The high lending rate reflects banks' fears: They have no confidence that the other guy will be able to pay the money back, even when the loan is only for a single day.
"There's just an environment of distrust right now, and that's the core of this entire crisis," said Ward McCarthy, managing director of Stone & McCarthy Research Associates. "These anxieties have to be relieved and a level of confidence has to return for us to get out of this."
The difficulties in the lending market between banks both result from, and can exaggerate, the crisis. The banks from which people are withdrawing money have the greatest need to borrow cash from other firms, yet the breakdown in that lending market makes it all the more likely that they won't be able to get such loans, and thus increase the chances that they fail.
The problem appears to be most severe among European banks. In the United States, bank regulators have been aggressive about engineering buyouts of troubled banks -- most notably Washington Mutual and Wachovia -- without wiping out their lenders.
Meanwhile, the Federal Reserve has taken aggressive steps to try to flood U.S. banks with cash. Last Wednesday, the Fed had $189 billion in loans out to banks for that purpose, and Monday it announced an expansion of those efforts.
"On the domestic side, the Fed has absolutely opened the floodgates," McCarthy said.
But the market for cash among banks is global, and in Europe, government interventions have been unpredictable, with different countries taking different tacks to try to prevent a spiraling crisis in the financial system. Ireland yesterday, for example, effectively put a government guarantee behind its biggest banks for the next two years, while authorities in France, Belgium and Luxembourg injected $9.4 billion into Dexia, a bank that operates in the three nations.
"Does an Italian bank trust a Spanish bank?" asked Albert Kyle, a finance professor at the University of Maryland. "Not as much as a U.S. bank trusts another U.S. bank."
The Fed has also taken novel steps to try to inject dollars into foreign banks, though so far it apparently hasn't been enough to settle the lending environment among them.
Monday, it said it would expand those steps, such that foreign central banks will have access to $620 billion to try to inject dollars into the banks in their respective countries.
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By Neil IrwinWashington Post Staff WriterWednesday, October 1, 2008; D01
At the core of the financial crisis is a simple problem: Banks don't fully trust each other. So they hoard cash and only lend to each other if the borrowing bank pays enough to justify the risk.
The best indicator of the simmering interbank distrust is an obscure-sounding interest rate known as Libor, which is flashing red. Libor, or the London interbank offered rate, is the rate that banks worldwide charge each other for short-term loans.
Yesterday, the annualized rate for those overnight loans spiked by more than four percentage points, to 6.9 percent, its highest level ever. Normally, Libor on dollar loans is not much higher than what it costs the U.S. government to borrow short-term money, which yesterday was nearly zero.
That tells experts that banks around the world are basically unwilling to lend to each other at any price. It means that cash is not flowing to places that need it. And, if sustained, would ultimately lead to higher borrowing costs for ordinary U.S. households and businesses.
"The interbank markets are a fundamental part of the plumbing of the financial world," Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said in a speech yesterday. Many variable-rate mortgages, corporate loans, and other forms of debt adjust relative to Libor.
"This contraction in availability and rise of the cost of credit have worsened . . . for corporate and business borrowers," Lockhart said. "We've heard anecdotes confirming this from contacts throughout the Southeast. In short, Main Street is being affected."
When the Federal Reserve lowers the interest rate it directly controls, it helps stimulate the economy. But the rise in Libor, economists say, is likely to have the opposite effect, slowing the economy at the worst possible time.
The high lending rate reflects banks' fears: They have no confidence that the other guy will be able to pay the money back, even when the loan is only for a single day.
"There's just an environment of distrust right now, and that's the core of this entire crisis," said Ward McCarthy, managing director of Stone & McCarthy Research Associates. "These anxieties have to be relieved and a level of confidence has to return for us to get out of this."
The difficulties in the lending market between banks both result from, and can exaggerate, the crisis. The banks from which people are withdrawing money have the greatest need to borrow cash from other firms, yet the breakdown in that lending market makes it all the more likely that they won't be able to get such loans, and thus increase the chances that they fail.
The problem appears to be most severe among European banks. In the United States, bank regulators have been aggressive about engineering buyouts of troubled banks -- most notably Washington Mutual and Wachovia -- without wiping out their lenders.
Meanwhile, the Federal Reserve has taken aggressive steps to try to flood U.S. banks with cash. Last Wednesday, the Fed had $189 billion in loans out to banks for that purpose, and Monday it announced an expansion of those efforts.
"On the domestic side, the Fed has absolutely opened the floodgates," McCarthy said.
But the market for cash among banks is global, and in Europe, government interventions have been unpredictable, with different countries taking different tacks to try to prevent a spiraling crisis in the financial system. Ireland yesterday, for example, effectively put a government guarantee behind its biggest banks for the next two years, while authorities in France, Belgium and Luxembourg injected $9.4 billion into Dexia, a bank that operates in the three nations.
"Does an Italian bank trust a Spanish bank?" asked Albert Kyle, a finance professor at the University of Maryland. "Not as much as a U.S. bank trusts another U.S. bank."
The Fed has also taken novel steps to try to inject dollars into foreign banks, though so far it apparently hasn't been enough to settle the lending environment among them.
Monday, it said it would expand those steps, such that foreign central banks will have access to $620 billion to try to inject dollars into the banks in their respective countries.
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Libor Etc.
Markets BriefStocks Surge, Credit Crumbles, Investors ConfusedSteve Schaefer, 09.30.08, 6:00 PM ET
It may be rare that a triple-digit gain on the Dow is not good news, but Tuesday's surge comes on the heels of a historic decline and at a time that credit markets are freezing up. Key lending rates continued to rise on Tuesday, as the U.S. administration and lawmakers continue working on a bailout for the American financial system after an initial attempt was voted down by the House of Representatives Monday.
Despite the bailout uncertainty and worrisome credit landscape, stocks recouped a portion of their week-opening losses on Tuesday. The Dow gained 485 points, or 4.7%, to 10,851, and nearly halving its loss over the past two days to 2.6%. The S&P 500, which added 58 points, or 5.3%, to 1,165, cut its decline for the week to 4.0%, while the Nasdaq's gain of 99 points, or 5.0%, to 2,082, helped shave its two-day loss to 4.6%.
The London interbank offered rate, a key measure of banks' willingness to lend, has surged in recent days and Tuesday was no different. Overnight Libor spiked to 6.88, from 2.56%, while three-month Libor was up to 4.05%, from 3.89%. The closely-watched Ted spread -- the difference between Libor and the yield on a three-month U.S. Treasury bill -- actually narrowed somewhat Tuesday as the three-month T-bill yield rose to 0.92%, from 0.51%. Short-term Treasury yields had been dropping of late as traders sought a safe place to park their money, regardless of the return, particularly during Monday's plunge. (See "Banks Are Squeezed, Credit Is Crushed.") The wider the Ted spread, the more fear in the credit markets.
In addition to interbank lending, problems are also lurking in other corners of the credit markets like derivatives and commercial paper. Many companies use commercial paper, basically short-term IOUs, to fund daily operations like payroll. On Wednesday, the Federal Reserve shares its latest data on the commercial paper market, with another decline expected after the Sept. 24 report showed the market shrank by $113.0 billion over the previous two weeks. Another decrease would indicate companies have struggled to find buyers and roll over existing commercial paper, and that they may need to turn to tap more expensive bank credit lines or issue bonds to raise cash.
Tuesday's equity gains and credit market turbulence is set against the backdrop of the financial rescue plan, which hit a wall in the House Monday and remains unpopular to the public. Taxpayers had another voice chime in on their side Tuesday as a letter sent by BB&T Chairman John Allison to Congress last week was circulated. The letter expressed his frustration with the bailout, saying it was "inappropriate the debate is being shaped by…financial institutions who made poor decisions." (See "Lawmakers Seek Solution To Bailout Plan Mess.")
Allison goes on to say there is "no panic on Main Street or in sound financial institutions," and offers a 14-point list of key points for a rescue "from a healthy bank's perspective."
The list echoes many of the concerns brought to bear by opponents of the existing bill, most notably the lack of a method to determine the price of the assets the Treasury would acquire from financial institutions. Allison also called for the government to limit its purchases to housing assets, like lots and unsold homes, to resolve a "housing value crisis," not mortgage-backed securities, credit card or auto loans or other liabilities.
The U.S. Securities and Exchange Commission is proposing company estimates be used for fair-value accounting when a market is nonexistent, according to TradeTheNews.com, and is discussing possible amendments with the Financial Accounting Standards Board. Such a change would alter current mark-to-market rules and give financial firms more wiggle room to create a market for difficult to price assets like mortgage-backed securities, which have some value but have been vilified due to certain bad components such as subprime loans.
Despite the ongoing bailout fight and credit market turmoil, Tuesday was undeniably a strong rebound, despite light volume due to the Jewish Rosh Hashana holiday. Regional banks recouped some of Monday's losses, led by Sovereign Bancorp. (nyse: SOV - news - people ). The Philadelphia-based bank announced the departure of its CEO, and shares leaped 71.2% to pace a strong day for the sector.
National City (nyse: NCC - news - people ) was showing a 39.7% gain. A spokeswoman for the Ohio-based bank clarified that a $20.0 billion loan portfolio the bank was said to be interested in shedding contains loans from businesses that National City is no longer operating in and that the bank is merely considering dispositions and has not made any determination on its course of action. She also noted that if a bailout proposal were to be passed by Congress, the Treasury program would provide another option for the company to consider in its disposition of any of the portfolio.
Bigger banks were also on the mend after Monday's meltdown. Dow components Bank of America (nyse: BAC - news - people ), Citigroup (nyse: C - news - people ), and JPMorgan Chase (nyse: JPM - news - people ) were up between 3.5% and 6.0% heading into the close. The firms have also been the beneficiaries of the recent turmoil in the financial system, scooping up brokerage and banking assets at seemingly fire-sale prices. Bank of America made deal with Merrill Lynch right around the time Lehman Brothers Holdings was declaring bankruptcy, while Citigroup and JPMorgan made FDIC-brokered deals to acquire assets from Wachovia and Washington Mutual, respectively, over the past week and a half. (See "Big Banks Hunting, Regional Banks Hurting.")
Outside the financial sector Google (nasdaq: GOOG - news - people ) plunged into the close on an otherwise up day Tuesday, leading Nasdaq Marketwatch to investigate trading in the company's shares. After dropping below the $400.00 level Monday, Google was comfortably above the threshold for most of the day but then dove more than 25.0% just ahead of the bell.
Tuesday's gains came at the close of the third-quarter, and it was not a pretty three months for Wall Street. The Dow lost 6.0% in the month of September to fall 4.4% for the quarter; while the S&P was down 9.0% in Q3 after a 9.2% September drop. The Nasdaq's September loss of 12.1% locked in a 9.2% third-quarter slide.
Libor Yesterday Morning
Libor Rises Most on Record After U.S. Congress Rejects Bailout
By Gavin Finch
Sept. 30 (Bloomberg) -- The cost of borrowing in dollars overnight in London rose the most on record after the U.S. Congress rejected a $700 billion bank-rescue plan, putting an unprecedented squeeze on the global financial system.
The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers' Association said. The euro interbank offered rate, or Euribor, for one-month loans jumped to a record 5.05 percent, the European Banking Federation said. The Libor-OIS spread, a gauge of the scarcity of cash, also increased to an all-time high.
``This is unheard of, the money markets should be the engine driving the financial system but they have broken down,'' said Kornelius Purps, a fixed-income strategist in Munich for UniCredit Markets and Investment Banking, a unit of Italy's largest lender. ``Any institution that hasn't completed its 2008 funding needs by now is going to be in very serious trouble. More banks are going to need to be bailed out.''
The seizure in the credit markets is tipping lenders toward insolvency, forcing governments to rescue five banks in the past two days, including Dexia SA, the world's biggest provider of loans to local governments, and Wachovia Corp.
Money-market rates climbed even after the Federal Reserve more than doubled the size of its dollar-swap line yesterday with foreign central banks to $620 billion. In Europe, banks borrowed dollars from the ECB today at almost six times the Fed's benchmark interest rate.
Commercial Paper
Libor, set by 16 banks including Citigroup Inc. and UBS AG in a daily survey by the BBA, is used to calculate rates on $360 trillion of financial products worldwide, from credit derivatives to home loans and company bonds.
As money-market rates rise, banks charge higher interest on loans to companies and consumers. U.S. securities firms and lenders alone have a record $871 billion of bonds maturing through 2009, according to JPMorgan Chase & Co.
Yields on overnight U.S. commercial paper jumped 171 basis points today to an eight-month high of 3.95 percent, according to data compiled by Bloomberg. Average rates on paper backed by assets such as credit cards and auto loans rose 229 basis points to 6.5 percent, the highest since 2001.
Companies sell commercial paper to help pay for day-to-day expenses such as salaries and rent.
GMAC, owned by Cerberus Capital Management LP and General Motors Corp., is willing to pay 6 percent to borrow seven-day paper, up 25 basis points from yesterday and double that of 12 weeks ago, Bloomberg data show. The rate for New York-based Citigroup Inc. rose to 3.5 percent, up 75 basis points this month and the highest since January. General Electric Capital Corp. offered 30-day paper at 2.85 percent, the highest since February.
ECB Injection
Funding constraints are being exacerbated as financial companies try to settle trades and buttress balance sheets over the quarter-end, balking at lending for more than a day.
The Frankfurt-based ECB said it lent banks $30 billion for one day at a marginal rate of 11 percent, 900 basis points above the Fed's key rate of 2 percent. The ECB said it received bids for $77.3 billion. The Bank of Japan injected more than 19 trillion yen ($182 billion) into the country's system over the past two weeks, the most in at least six years. The Reserve Bank of Australia pumped in A$1.95 billion ($1.6 billion) today.
In the year before the turmoil in money markets began in July 2007, the Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, never exceeded 15 basis points. It widened to a record 250 basis points today, before easing back to 2.34 percentage points.
`Broken Down'
``The money markets have completely broken down, with no trading taking place at all,'' said Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort in Frankfurt. ``There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.''
Borrowing rates rose in Asia earlier today. The three-month interbank offered dollar rate in Singapore jumped to an eight- month high of 3.90 percent. The three-month rate in Hong Kong rose by the most in almost a week to 3.664 percent. The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate reached 98 points, close to a six-month high.
Financial institutions have posted almost $590 billion of writedowns and losses tied to U.S. subprime mortgages since the start of last year, according to data compiled by Bloomberg.
`New Extreme'
Dexia got a 6.4 billion-euro ($9.2 billion) state-backed rescue, Belgian Prime Minister Yves Leterme said today. Yesterday, the U.K. Treasury seized Bradford & Bingley Plc, Britain's biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg extended a lifeline to Fortis, Belgium's largest financial-services firm. Elsewhere, Hypo Real Estate Holding AG received a loan guarantee from Germany, and Iceland agreed to rescue Glitnir Bank hf.
``Counterparty fear in the banking sector is at a new extreme,'' said Greg Gibbs, director of currency strategy at ABN Amro Holding Bank NV in Sydney. ``Credit conditions are as tight as a drum. Unless this settles down, central banks would need to cut rates globally to bring funding costs down.''
Congress's rejection of the U.S. government's bank-rescue plan yesterday prompted traders to fully price in a cut in the Fed's target rate of at least a quarter point next month, futures on the Chicago Board of Trade showed. The odds were zero percent a month ago.
The difference between what banks and the U.S. Treasury pay to borrow money for three months, the so-called TED spread, was at 314 basis points today after breaching 350 basis points for the first time yesterday. The spread was 110 basis points a month ago.
``We can be sure that funding pressures are not going to ease while there is so much uncertainty,'' said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker. ``Cash is going to be at a premium. There's really no end in sight.''
To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net Last Updated: September 30, 2008 15:25 EDT
By Gavin Finch
Sept. 30 (Bloomberg) -- The cost of borrowing in dollars overnight in London rose the most on record after the U.S. Congress rejected a $700 billion bank-rescue plan, putting an unprecedented squeeze on the global financial system.
The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers' Association said. The euro interbank offered rate, or Euribor, for one-month loans jumped to a record 5.05 percent, the European Banking Federation said. The Libor-OIS spread, a gauge of the scarcity of cash, also increased to an all-time high.
``This is unheard of, the money markets should be the engine driving the financial system but they have broken down,'' said Kornelius Purps, a fixed-income strategist in Munich for UniCredit Markets and Investment Banking, a unit of Italy's largest lender. ``Any institution that hasn't completed its 2008 funding needs by now is going to be in very serious trouble. More banks are going to need to be bailed out.''
The seizure in the credit markets is tipping lenders toward insolvency, forcing governments to rescue five banks in the past two days, including Dexia SA, the world's biggest provider of loans to local governments, and Wachovia Corp.
Money-market rates climbed even after the Federal Reserve more than doubled the size of its dollar-swap line yesterday with foreign central banks to $620 billion. In Europe, banks borrowed dollars from the ECB today at almost six times the Fed's benchmark interest rate.
Commercial Paper
Libor, set by 16 banks including Citigroup Inc. and UBS AG in a daily survey by the BBA, is used to calculate rates on $360 trillion of financial products worldwide, from credit derivatives to home loans and company bonds.
As money-market rates rise, banks charge higher interest on loans to companies and consumers. U.S. securities firms and lenders alone have a record $871 billion of bonds maturing through 2009, according to JPMorgan Chase & Co.
Yields on overnight U.S. commercial paper jumped 171 basis points today to an eight-month high of 3.95 percent, according to data compiled by Bloomberg. Average rates on paper backed by assets such as credit cards and auto loans rose 229 basis points to 6.5 percent, the highest since 2001.
Companies sell commercial paper to help pay for day-to-day expenses such as salaries and rent.
GMAC, owned by Cerberus Capital Management LP and General Motors Corp., is willing to pay 6 percent to borrow seven-day paper, up 25 basis points from yesterday and double that of 12 weeks ago, Bloomberg data show. The rate for New York-based Citigroup Inc. rose to 3.5 percent, up 75 basis points this month and the highest since January. General Electric Capital Corp. offered 30-day paper at 2.85 percent, the highest since February.
ECB Injection
Funding constraints are being exacerbated as financial companies try to settle trades and buttress balance sheets over the quarter-end, balking at lending for more than a day.
The Frankfurt-based ECB said it lent banks $30 billion for one day at a marginal rate of 11 percent, 900 basis points above the Fed's key rate of 2 percent. The ECB said it received bids for $77.3 billion. The Bank of Japan injected more than 19 trillion yen ($182 billion) into the country's system over the past two weeks, the most in at least six years. The Reserve Bank of Australia pumped in A$1.95 billion ($1.6 billion) today.
In the year before the turmoil in money markets began in July 2007, the Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, never exceeded 15 basis points. It widened to a record 250 basis points today, before easing back to 2.34 percentage points.
`Broken Down'
``The money markets have completely broken down, with no trading taking place at all,'' said Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort in Frankfurt. ``There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.''
Borrowing rates rose in Asia earlier today. The three-month interbank offered dollar rate in Singapore jumped to an eight- month high of 3.90 percent. The three-month rate in Hong Kong rose by the most in almost a week to 3.664 percent. The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate reached 98 points, close to a six-month high.
Financial institutions have posted almost $590 billion of writedowns and losses tied to U.S. subprime mortgages since the start of last year, according to data compiled by Bloomberg.
`New Extreme'
Dexia got a 6.4 billion-euro ($9.2 billion) state-backed rescue, Belgian Prime Minister Yves Leterme said today. Yesterday, the U.K. Treasury seized Bradford & Bingley Plc, Britain's biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg extended a lifeline to Fortis, Belgium's largest financial-services firm. Elsewhere, Hypo Real Estate Holding AG received a loan guarantee from Germany, and Iceland agreed to rescue Glitnir Bank hf.
``Counterparty fear in the banking sector is at a new extreme,'' said Greg Gibbs, director of currency strategy at ABN Amro Holding Bank NV in Sydney. ``Credit conditions are as tight as a drum. Unless this settles down, central banks would need to cut rates globally to bring funding costs down.''
Congress's rejection of the U.S. government's bank-rescue plan yesterday prompted traders to fully price in a cut in the Fed's target rate of at least a quarter point next month, futures on the Chicago Board of Trade showed. The odds were zero percent a month ago.
The difference between what banks and the U.S. Treasury pay to borrow money for three months, the so-called TED spread, was at 314 basis points today after breaching 350 basis points for the first time yesterday. The spread was 110 basis points a month ago.
``We can be sure that funding pressures are not going to ease while there is so much uncertainty,'' said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker. ``Cash is going to be at a premium. There's really no end in sight.''
To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net Last Updated: September 30, 2008 15:25 EDT
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