Three-month dollar Libor rates inch up

The cost of borrowing dollars over three months inched up on Tuesday, maintaining its slight rising trend due to ongoing concerns about the global economy, while euro rates touched a lifetime low ahead of a widely expected interest rate cut this week.
The spread between three-month London interbank offered rates (Libor) over Overnight Index Swap rates, or anticipated central bank rates, widened for all three currencies, expanding for euros and sterling in particular in a reflection of their lower Libor rates.
A slide in European shares to a 12-year lifetime low on Tuesday and a fall in US shares to their lowest since October 1996 on Monday highlighted concerns about the global economy as countries sink deeper into recession. This helped to prod the bank-to-bank lending rate on short-term dollars higher.
But rates for the euro continued their slow, steady, downward trend on the view that the European Central Bank will likely cut rates by 50 basis points from 2.0 percent at a policy meeting on Thursday. The Bank of England is also seen cutting rates by 50 basis points from 1.0 percent the same day, which helped to nudge three-month sterling Libor rates to their lowest level on Reuters charts dating back to 1986.
"The main driver certainly is rate expectations but even in this regard, there's a high degree of continuity in the trend in which rates just keep coming down very slowly," said Kornelius Purps, fixed income strategist in at UniCredit MIB in Munich.
Three-month dollar Libor rates were fixed at 1.27125 percent on Tuesday, inching up from 1.26625 percent on Monday. Borrowing rates for euros over three months slipped to 1.79875 percent, their lowest since the euro was launched in 1999, from 1.81375 percent, while the sterling equivalent was fixed at 2.02625 percent versus 2.03375 percent on Monday.
Euro Libor rates slid to their lowest level ever, pulled lower after the three-month Euribor bank-to-bank lending rate for the currency also hit a lifetime low on Tuesday. The Libor/OIS spread for dollars widened a touch to 104 basis points from 102 basis points on Monday, while the spread for euros expanded to 100 basis points from 97 basis points.
The spread for sterling expanded to 168 basis points from 162 basis points. Analysts said the widening in the spread was a reflection of an ongoing distortion in short-term money markets, given that EONIA rate futures have been tracking the ECB's repo rate, rather than its refinancing rate.