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Money Market Rates Extend Decline as Central Banks Provide Cash
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2008-11-12 09:51:00 |
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Money-market rates extended declines as central banks injected cash into the financial system to counter a collapse in lending.
The rate New Zealand banks charge each other for three- month loans fell 20 basis points, the most in three weeks, to 6.39 percent as of the 10:42 a.m. fixing in Wellington, as the country's central bank pumped NZ$500 million ($285 million) into money markets in the first of a new weekly term auction facility. The comparable rate Australian banks charge each other for three-month loans fell 8 basis points to 4.84 percent.
Financing costs dropped from last month's peaks as central banks provided unlimited dollar funding and governments offered bailouts and guarantees to financial institutions. Credit markets, which began seizing up after BNP Paribas SA halted withdrawals on three funds in August 2007, froze after Lehman Brothers Holdings Inc. collapsed on Sept. 15., destroying lenders' confidence they would be repaid.
``Aggressive global initiatives to unlock frozen credit markets are starting to filter through, evidenced in declining U.S. Libor rates and more importantly, the TED spread,'' RBC Capital Markets analysts led by Toronto-based Matthew Strauss wrote yesterday in a report.
The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars slid 6 basis points to 2.18 percent yesterday, the 22nd consecutive decline and the lowest level since Oct. 29, 2004, according to British Bankers' Association data.
TED Spread
The gap between what banks and the Treasury pay to borrow for three months, known as the TED spread, narrowed 28 basis points to 175 basis points. The gauge, which reached 464 basis points on Oct. 10, averaged 31 basis points in the five years to July 31, 2007, before the credit squeeze began. A basis point is 0.01 percentage point.
Libor, the benchmark for $360 trillion of financial products worldwide, is set by a panel of banks in a daily survey by the British Bankers' Association before noon in London.
The Libor-OIS spread, which former Federal Reserve Chairman Alan Greenspan said in June should serve as a measure for determining when markets have returned to normal, was 168 basis points yesterday, the narrowest since Sept. 24. The spread measures the difference between the rate banks charge for three- month dollar loans relative to the overnight indexed swap rate.
The spread compares with 87 basis points on the last trading day before Lehman declared bankruptcy, and an average of 11 basis points in the five years before the onset of the financial crisis.
Bills, Swaps
The difference between the New Zealand three-month bank bill yield and the overnight indexed swap rate, a measure of funding availability, declined 17 basis points to 78 basis points, heading for the narrowest close since Oct. 27. The similar Australian spread shrank 3.5 basis points to 43, the smallest gap since Sept. 12, the last working day before Lehman Brothers filed for bankruptcy.
The Reserve Bank of Australia pumped A$1.48 billion ($971 million) into money markets today after estimating there would be a deficit of A$1.84 billion. The nation's banks reduced deposits held at the RBA by A$412 million to A$4.6 billion yesterday, the least since Sept. 16, the central bank said today on its Web site.
New Zealand's central bank received bids totaling NZ$550 million at today's term auction. The Reserve Bank started the facility to help maintain liquidity for the nation's banks as they face difficulties borrowing from abroad.
Rate Cuts
Policy makers in Australia, China, the U.K., Japan, the U.S., India, Taiwan, South Korea and the euro region all cut borrowing costs in the past three weeks. China, which reported yesterday that inflation cooled to the slowest in 17 months, has pledged $586 billion in spending to bolster growth.
The G-20 said Nov. 9 it's prepared to act ``urgently'' to bolster growth and called on governments to cut borrowing costs and raise spending. The International Monetary Fund said the U.S., Japan, the euro region and the U.K. will contract next year in their first simultaneous recession since World War II.
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Chinese (ÖÐÎÄ°æ)
