Overnight interbank dollar rates slip but stay high
Overnight money market stress eased in Europe on Thursday but lending rates remained above central bank targets, reflecting banks’ firmly entrenched aversion to counterparty risk.
Rates have remained elevated despite massive liquidity injections by central banks around the world as the ongoing crisis in the financial system has prompted banks to hoard cash and refuse to lend to each other.
The European Central Bank kept key rates unchanged as expected at 4.25 percent but some in the market expect the central bank to cut rates in the coming months to deal with economic weakness that could result from the banking crisis.
Interbank overnight dollar rates fell for a second day running in London, after a record surge earlier this week as quarter end funding pressure eased and the U.S. Senate passed a revamped $700 billion bank bailout plan.
Overnight dollar Libor rates fell more than a full point to 2.68125 percent from 3.79375 percent on Wednesday while euro overnight rates also eased.
Rates further out jumped, with benchmark three-month rates — which now cover the year-end period — fixed higher in dollars and euros.
Three-month dollar Libor rose to 5.31750 percent, their highest since January, up from 4.15000 percent on Wednesday payday loans online. The euro-zone equivalent for euros hit its highest since the launch of the single currency, at 5.31750 percent.
“The liquidity provisioning which central banks have made has effectively drawn a line under how bad things can get but not addressed underlying problems over the value of assets that are held by counterparties,” said Richard McGuire, fixed income strategist at RBC Capital Markets in London.