Interbank dollar borrowing rates remained high and premia paid over US government borrowing rates stayed wide on Friday, with money markets clogged up as US political wrangling appeared to stall the passing of a $700 billion financial crisis bailout plan. The continued stress in global money markets highlights investors' concern surrounding the plan, when it will be passed, and if so, how it will look.
To help ease the unprecedented strains in money markets, central banks around the world on Friday pumped in billions of dollars of extra liquidity into the global banking system. Central banks in Asia provided dollar and local currency liquidity, the Federal Reserve said it is expanding its currency swap operations with the European Central Bank and Swiss National Bank, and the Bank of England said it will extend its dollar liquidity provisions.
In early London trade on Friday the interbank cost of borrowing dollars for three months was indicated at the upper end of a wide range between 3.7 and 4.8 percent. Thursday's fixing of three-month London interbank offered rates by the British Bankers Association was 3.76875 percent, and ICAP's three-month dollar New York Funding Rate was 4.2182 percent.
The closely-watched TED spread, or the difference between these market-based dollar rates and three-month US government borrowing rates, fluctuated in a range of around 350 to 400 basis points in early London trade on Friday. That spread had ballooned last week to almost 500 basis points, the widest in over a quarter of a century.
Three-month US T-bill yields hovered around 0.75 percent. Talks in Washington aimed at reaching agreement on the US Treasury's $700 billion Wall Street rescue package broke down in acrimony late on Thursday, and will resume again Friday.
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