The cost of bank-to-bank borrowing rose on Monday, continuing a two-week rebound on resurgent concerns about more losses as the global financial system struggles with its most acute crisis since the Great Depression. The interbank cost of borrowing three-month dollar funds rose to 1.2250 percent on Monday from 1.18438 percent on Friday and was up from less than 1.10 percent in mid-January.
According to the latest daily fixing from the British Bankers' Association. However, three-month London interbank offered rates for euro and sterling funds fell slightly. "It seems like we are going through another cycle of worrying about the financial system," said Michael Feroli, US economist with J.P. Morgan in New York.
"Every couple of months we have a new policy response which may calm things down for a while and then people get more and more worried," he said. In late January, Libor rates moved higher "when bank earnings started coming out and people got worried again about where the banks stand and what policy makers will do," Feroli said.
Libor, or the London interbank offered rate, is the world's leading benchmark to which short-term borrowing costs are referenced. Borrowing costs for US-based banks also rose. ICAP's 3-month New York Funding Rate was 1.2750 percent, up from the previous session's 1.2582 percent, ICAP said.
The Libor/OIS spread, which expresses the three-month premium paid over anticipated central bank rates, or Overnight Index Swap rates, rose to 98 basis points. That spread is seen as a gauge of banks' willingness to lend to each other. A wider spread is seen as a signal banks are becoming more wary about lending.
However, some analysts said the rise in interbank borrowing rates and of gauges of banks' distrust of lending to each other has been fairly modest considering that the US Federal Reserve has been paring back part of its huge cash injections to help struggling financial institutions. "The biggest reason I see for the rise in interbank lending rates, particularly terms of interbank lending rates, is the healing process that's under way," said Ray Stone, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey.
Since its huge additions of cash to the banking system peaked in early December, the Fed has pared those infusions by about $250 billion, Stone calculated. In Asia, US dollar funding rates inched higher, keeping to the recent trend, with traders in Singapore quoting 3-month dollars at 1.235 percent, up from Friday's 1.18143 percent and 1-year dollars at 2.06167 percent, compared with 1.94857 percent.
Bill futures in Australia inched higher on Monday as the market factored in deeper rate cuts on the eve of the central bank's monthly policy meeting. Investors are pricing in a 100 basis points cut in Australia's key cash rate to a record low of 3.25 percent, while some say the Reserve Bank of Australia could surprise with a bigger reduction.
"The weakness in equities late last week, revision of growth forecast by the IMF and fears of a recession are all supporting the view the RBA is going to be very aggressive," said Adam Donaldson, head debt strategist at Commonwealth Bank.
Elsewhere, India's overnight cash rates rose to 4.20-4.30 percent from Friday's 4.00-4.15 percent as a new two-week reporting period commenced and with 100 billion rupees of cash flowing out from the system for bond auction payments. South Korea's three-month certificate of deposit rates were steady at 2.96 percent, and the spread over three-month government bills was 2 basis points lower at 2.02 percent, ahead of a major government bond auction.
Comments
Comments are closed.