This Bloomberg story tries to take an oddly cheery tone, when in fact, it reports in effect, than an analyst forecasts that the heroic measures taken to unfreeze interbank lending will not lead to much in the way of a rate reduction. However, if any lending were to take place at the three month tenor, that would still be a considerable improvement.
The story also reports that the change in stress measures yesterday and so far today has been modest to non-existent.
And we’ll see the real impact soon enough, regardless.
European money-market rates may fall after the U.S. joined the U.K., Germany and France in offering to buy stakes in banks as part of measures designed to revive lending and restore confidence to the global financial system.
The cost of borrowing in dollars for three months in London will drop about 15 basis points to 4.60 percent, according to David Buik, a market analyst at BGC Partners….
“What everyone was crying out for was a coordinated central policy response, and that’s what we got,” said Patrick Bennett, a currency strategist with Societe Generale SA in Hong Kong. “What we had was a lack of confidence in the money markets. I think it’s starting to thaw.”..
The London interbank offered rate, or Libor, for three-month dollar loans fell 7 basis points yesterday to 4.75 percent, tied for the steepest drop since March 17, according to data from the British Bankers’ Association. The Libor for three-month cash in euros declined yesterday by the most since Dec. 28.
The dollar Libor-OIS spread, a gauge of demand for cash, was unchanged at 354 basis points today, after narrowing 10 basis points yesterday. It was at 105 basis points on Sept. 15 and 24 basis points on Jan. 24. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed 2 basis points to 455 basis points, down from 464 basis points on Oct. 10, the most since Bloomberg began tracking the data in 1984.
As we said at the outset, if we see any activity at the three month tenor, that would be progress, even if at a high price. So far, we have yet to hear anecdotes either way.