Today's LIBOR Rates
1 M |
0.25781 |
 |
3 M |
0.29281 |
|
6 M |
0.49363 |
|
1 YR |
0.83488 |
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June 5, 2010
Continued rises in LIBOR rates still constitute the big news of the LIBOR index. Per news roundups in LIBORATED.com over the past several weeks, LIBOR rates have been floating free from their historic lows of the past year, reflecting bank and market concerns over the eurozone debt crisis that could leave entire countries insolvent, many banks mortally wounded with bad debt, and stronger EU nations left footing the bill for the continental bailout. LIBOR stands for London Interbank Offered Rate and is a filtered average of rates that banks charge each other for short-term, unsecured loans.
On Monday, The Wall Street Journal reported that rising LIBOR rates could lead to European bank M&As as the increased cost of interbank borrowing and the resultant liquidity shutdown force stumbling institutions into the arms of steadier brethren. According to the piece, Three-Month LIBOR has risen 80% since March, pushing it to marks not seen in nearly a year. While these new higher LIBOR rates are well above the all-time lows of early 2010, they are still far below the historically high LIBOR rates that followed the collapse of Lehman Brothers and worst extent of the financial crisis in Fall 2008.
The Wall Street Journal cited the recent consolidation of four Spanish banks as an example of the potential trend. Spain is considered one of the “peripheral” eurozone countries, along with Greece, that has precipitated the debt crisis. The article also stated that banks may avoid consolidation by selling off non-core business units.
On Tuesday, CNBC reported a slight retreat in U.S. Dollar LIBOR. However this failed to negate a widening of the TED Spread, a LIBOR-based indicator of banks’ willingness to lend. The TED Spread compares Three-Month U.S. Dollar LIBOR with rates on Three-Month Treasury Bills. The wider the spread, the more LIBOR is diverging from the Treasury rate, showing that banks are charging more for interbank loans and are therefore less willing to lend. According to CNBC, Tuesday’s TED Spread was 0.4146%, an increase of 3.44%.
Three-Month U.S. Dollar LIBOR started moving upward again midweek, from 0.5375% to 0.53781%. Writing for TopNews.US, Emma Ward quoted a London interest-rate strategist who said larger concerns for U.S. Dollar funding among European banks were actually settling down although there were remaining problems in the system. In The Wall Street Journal, Alan Mattich gave a similar case for less-than-total panic, citing LIBOR rates that were still significantly lower than those of the 2008 crash.
On Friday, Reuters reported that banks were wrestling with passing on their own higher borrowing costs, represented in higher LIBOR rates, as higher rates to their borrowers. Such possibilities point to a tightening of liquidity.