Credit market thaw as Libor hits record-breaking low
London interbank money market rates — the rates at which large international banks lend to each other — have fallen to new lows. The key three-month lending rate for the dollar fell below 1% for the first time in its history, breaking its previous floor of 1% set in June 2003.
Market commentators are interpreting this as a sign of thawing in the credit markets and that investors have become less risk-averse. Some suggest that the global economy may have moved past the worst of the economic crisis. Significantly, the spreads of the euro, dollar and the London Interbank Offered Rate (Libor) on the overnight money market rates have fallen to their lowest levels since last September. Euro and sterling three-month lending rates have also fallen steadily in 2009, largely helped by central banks’ decisions to cut base rates to record lows.
Libor is a daily average of the rates that 16 different banks charge each other to lend money in London. It is set by the British Bankers’ Association and is a closely watched benchmark. According to Bloomberg, more than $350 000bn worth of assets are tied to Libor, including mortgages, loans and corporate bonds.
