Libor dollar rates rise

Three-month interbank borrowing rates rose for the first time in a month on Thursday, telegraphing market anxiety about the US Treasury's turnaround on a plan to buy troubled assets. But in Europe, interbank lending rates eased gradually once again.
Central banks conducted another round of daily money market operations, while short-dated European government bond yields fell to their lowest in years further as expectations of deeper interest rate cuts intensified.
The interbank cost of three-month dollar borrowing inched higher on Thursday, breaking a 23-session losing streak, according to the latest daily fixing from the British Bankers' Association.
One of the factors that pushed up Libor rates after falling for the past month, is the US Treasury's turnaround on the Troubled Asset Relief Program, or TARP, to buy toxic assets, said John Ryding, chief economist at RDQ Economics LLC.
"I am not surprised. First, (Libor has) come down an awful long way and there is some uncertainty in the market on the poor selling job about why the TARP strategy was changed," Ryding said.
US Treasury Secretary Henry Paulson on Wednesday said the government would focus the remainder of its $700 billion bailout fund on making direct investments in financial institutions and shoring up consumer credit markets. After weeks of steady, gradual decline, the premium on Thursday for London interbank offered rates (Libor) over expected official policy rates measured by Overnight Index Swaps rose in euro and sterling markets.
Interest rate swap spreads, another closely-watched gauge of financial market stress, also widened, particularly in the two-year area. Two-year US swap spreads widened to 116.50 basis points in New York early on Thursday from about 101 basis points late Wednesday, signalling investors' risk aversion was rising.
In the week ended November 12, the size of the US commercial paper market, a vital source of short-term funding for daily operations at many companies, rose by a mere $2.9 billion to $1.603 trillion.
The US TED spread - the spread between 3-month treasury bills and interbank rates - narrowed to 170 basis points on Wednesday, far below the widest level of 460 basis points in October, but still double levels seen just before Lehman Brothers collapsed in mid-September.