March 17, 2008 / 12:27 PM / 12 years ago

Dollar overnight Libor rates soar as markets freeze

 LONDON, March 17 (Reuters) - The cost of borrowing overnight
dollar funds on the interbank market soared on Monday as the
financial market crisis deepened following a fire sale of
investment bank Bear Stearns and an emergency Federal Reserve
cut to a key lending rate, making banks extraordinarily
reluctant to lend to each other.
 Overnight dollar London interbank offered rates (Libor)
jumped by more than 80 basis points, the biggest daily increase
since the September 11, 2001 attacks at a stroke siezed up
interbank liquidity and heightened counterparty risk.
 Overnight dollar Libor rose to 3.86250 percent from 3.05375
percent on Friday, but three-month rates pushed further below 3
percent as the market bet on hefty rate cuts from the Fed at its
scheduled policy meeting on Tuesday.
 Euro and sterling 3-month rates also pushed higher,
according to the British Bankers Association, with sterling
rates reaching their highest this year at 5.95875 percent and
euro rates just shy of their highest this year at 4.65813
percent.
 Traders said money markets had all but ground to a halt on
Monday, with banks intensely suspicious of lending to one
another. Meanwhile, stocks tumbled and government bonds soared
as funds sought a safe-haven. 
 Despite co-ordinated central bank moves last week to inject
liquidity into the system, the gridlock intensified.
 In an unexpected move late on Sunday the Fed lowered the
discount rate on direct loans to banks to 3.25 percent from 3.5
percent and implemented steps to provide cash to a wider range
of financial firms via tools not used since the Great
Depression. 
 "There is a lot of distrust between banks and also
yesterday's Fed rate cut has increased distrust as it shows
something really bad is going on," said ING rate strategist
Wilson Chin. 
 Spreads of unsecured dollar and euro rates over secured
rates also widened sharply on Monday with the dollar 3-month
Libor/Overnight Index Swap spread hitting 73 bps and the euro
spread widening to 77 bps. 
 "It's quite illiquid this morning. If you want unsecured
cash you're really going to have to pay up for it. It's really
quite an intense situation," said David Keeble, head of rate
strategy at Calyon.
 Below is a table of dollar, euro and sterling Libor in
percentage terms, with the previous session's rates in
parentheses.
 
         DOLLAR              EURO              STERLING
O/n  3.86250 (3.05375)  4.05500 (4.04125)   5.58750 (5.31375)
1 wk 2.60250 (2.76000)  4.16000 (4.15063)   5.56625 (5.34625)
2 wk 2.57875 (2.76750)  4.24938 (4.23375)   5.59625 (5.44625)
1 mo 2.55875 (2.77500)  4.33188 (4.31375)   5.71875 (5.70000)
2 mo 2.56500 (2.77063)  4.45625 (4.43625)   5.82125 (5.79750)
3 mo 2.57875 (2.76375)  4.65813 (4.61750)   5.95875 (5.93188)


 For RICs to the above rates, go to <0#LIBORSUPERRICS>.
 (Editing by Ron Askew)


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