US Dollar LIBOR-OIS Spread Tightens Good news from Citi, Dubai improves LIBOR-based lending barometer

December 15, 2009

According to iMarketNews.com, the LIBOR-OIS Spread for the US Dollar contracted 0.6 basis points as good news from Citigroup and Dubai boosted market sentiment. LIBOR stands for London Interbank Offered Rate and is a filtered average of rates that banks charge each other for unsecured, short-term loans.

Two favorable announcements improved bank confidence: American giant Citigroup said that it would pay back bailout funds to the US Government; Abu Dhabi agreed to lend its financially troubled neighbor Dubai $10 billion. With this news, US Dollar LIBOR-OIS contracted to 0.25375. The LIBOR-OIS Spread measures the gap between LIBOR and the historically more stable Overnight Index Swap (OIS), an anticipated monthly average of the federal funds rate. The more LIBOR hews to the OIS, the smaller the gap, indicating greater bank willingness to lend.

 

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