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Steve Netwriter

Libor - a key bellwether for the Crisis

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U.S. Mortgage Rates May Wreak Havoc After Libor Gain (Update2)

 

By Kathleen M. Howley

http://www.bloomberg.com/apps/news?pid=206...&refer=home

 

The overnight Libor rate in U.S. dollars soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers' Association. The one-week rate rose by more than a percentage point, to 3.88 percent from 2.49 percent on Monday, and the one-month rate increased to 2.75 percent from 2.5 percent.

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Many Libor-linked U.S. mortgages don't limit the size of a loan's first adjustment, with caps of 2 percent on subsequent changes. That means a monthly mortgage bill could double or even triple when it first resets.

 

=======

CHARTS

aa0ec0.gif

 

3 Month Libor =%

===========

End.Mar 2.68813

End.Jun 2.78313

End.July 2.79875

End.Aug 2.81063

09 / 05 : 2.81438

09 / 12 : 2.81875

09 / 19 : 3.21000

09 / 26 : 3.76188

10 / 03 : 4.33375

10 / 10 : 4.81875

10 / 17 :

 

/see: http://www.economagic.com/em-cgi/data.exe/libor/day-us3m

 

UP TO DATE : Libor link : http://www.bloomberg.com.au/markets/rates/keyrates.html

Compare: Here's Hibor : http://www.bloomberg.com/apps/quote?ticker=HIHD03M%3AINd

 

======== LIBOR

------------------CURRENT 1 MONTH

------------------------PRIOR 3 MONTH

------------------------------PRIOR 6 MONTH

-----------------------------------PRIOR 1 YEAR

Fed. Target ... : 2.00 2.00 2.00 2.25 4.75

Prime Rate .... : 5.00 5.00 5.00 5.25 7.75

1-Month Libor. : 4.09 2.49 2.46 2.74 5.12

3-Month Libor. : 4.29 2.81 2.79 2.73 5.24 ::: 4.29% on Oct.6th

5-Year AAA ... :

Banking&Finan.: 5.83 4.90 4.80 4.19 5.16

10-Year AAA

Banking&Finan.: 7.07 5.86 5.79 5.32 5.71

 

Daily close-up ... update: http://tinyurl.com/GEI-Libor

46678250ol2.png

 

More Charts, etc : http://www.advfn.com/cmn/fbb/thread.php3?id=18303457

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Federal Reserve offers no relief as US rates are held steady

http://business.timesonline.co.uk/tol/busi...icle4769906.ece

 

At one stage, the interest rate for overnight dollar funds leapt to 11.6per cent - more than four times the Fed's official rate. In London, the overnight Libor rate for dollar funds more than doubled to 6.4375 per cent, its highest since January 2001, exceeding the highest rates reached when the credit crisis erupted last August.

 

In another symptom of the severity of market strains, prices for US Treasury bonds soared as investors sought sanctuary by parking funds in assets that are considered the safest haven.

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...

Many Libor-linked U.S. mortgages don't limit the size of a loan's first adjustment, with caps of 2 percent on subsequent changes. That means a monthly mortgage bill could double or even triple when it first resets.

That's what I wanted to know earlier.

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Scots banks take a battering

http://www.theherald.co.uk/mostpopular.var...a_battering.php

 

A second day of tumult in the world's share markets took its toll on UK financial institutions, with Scottish giants HBOS and Royal Bank of Scotland at the forefront of another battering meted out to Britain's banks.

 

Britain's biggest mortgage lender, HBOS, yesterday saw £2.7bn wiped off its stock market value while Royal Bank of Scotland saw its share value slump by 10% as stock markets in America and Europe sustained heavy blows.

 

The value of the group formed by the merger of Halifax and Bank of Scotland is more than a third down in two days' trading, with its stock falling more than 40% during a second wave of panic selling before closing 22% lower. Royal Bank of Scotland's loss yesterday followed a 10% slump on Monday. Barclays also fell more than 4.7% at one stage but rallied to end 2.5% lower.

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In a further sign that confidence was draining from the UK and US banking sectors, inter-bank lending rates also increased yesterday, making funding more expensive. Overnight, the sterling Libor increased from 5.5% to 6.8%, while the dollar Libor rate increased even more steeply, from 3.1% to 6.4%.

 

In a desperate bid to stem the financial crisis, central banks around the world pumped funds into the money markets, including £20bn from the Bank of England.

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Fed swoops to save AIG with $US85 billion loan

http://www.crikey.com.au/Business/20080917...ilion-loan.html

 

The US Federal Reserve didn't cut interest rates this morning. It instead bailed out American International Insurance Group, once a major global insurer, with a two year loan of $US85 billion ($A106 billion) in the cruellest of ironies.

 

Only a few months ago AIG was the biggest US insurer by assets and a major global force. It had a market value earlier in the year of close to $US95 billion. This morning its shares traded at $US3.50, compared to the peak over the past year of more than $US70 a share. Its value at the close of trading was just over $US10 billion, but for all intents and purposes, it is now worthless.

 

Now the Fed is offering a huge insurer a one-way form of insurance (it will be terminal for AIG) to underwrite the global financial system. It is larger than anything so far attempted in the credit crunch and far more complex.

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It’s a highly expensive deal for AIG, this sort of help doesn't come cheap. The Fed will take a margin of 8.50% over the relevant London Interbank Offered Rate (LIBOR), according to its statement. LIBOR jumped to over 6% Tuesday night, so it's going to be an expensive loan. In the after hours market AIG shares finished at $US2.60, another 30% loss as the Fed and its advisers and the company completed the huge, unprecedented bailout.

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It came after central banks around the world injected well over $US200 billion into financial systems to keep liquidity levels high: the Fed added another $US50 billion Tuesday on top of the $US70 billion on Monday.

 

Nearly $US100 billion was injected in Europe and over $US35 billion in the UK: in Russia, close to $US20 billion was injected into the banking and stock markets after shares plunged, trading was suspended on the Moscow market for an hour and liquidity drained away.

 

It makes you wonder where all that money comes from ! :lol:

 

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OK, so there is no lending anymore. LIBOR is pure fantasy, I assume? (EDIT: or maybe I am reading this in the wrong way?)

 

What will all this mean for mortgages and house prices? :o

 

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Rates on three-month loans in dollars were as high as 10 percent as of 10:50 a.m. in London, said Ronald Tharun, a money-market trader in Stuttgart at Landesbank Baden-Wuerttemberg, Germany's biggest state-owned lender. The dollar Libor-OIS spread, a gauge of the scarcity of cash, advanced to a record. Rates in Asia also rose.

 

``The money markets have completely broken down, with no trading taking place at all,'' said Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort in Frankfurt. ``There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.''

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``The money markets have completely broken down, with no trading taking place at all,'' said Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort in Frankfurt. ``There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.''

 

This is definitely the mark of the derivative beast.

 

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http://www.telegraph.co.uk/finance/finance...s-traction.html

"The interbank market has collapsed," said Hans Redeker, currency chief at BNP Paribas.

 

"We're now seeing a domino effect as the credit multiplier goes into reverse and forces banks to cut back lending to clients," he said.

 

Mr Redeker said the latest alarming twist is a move by banks to deposit €28bn in funds at the European Central Bank in a panic flight to safety. This has jammed the mechanism used by the authorities to shore up the financial system in a crisis.

 

"The ECB is no longer able to inject liquidity because the money is just coming back to them again. This is extremely serious. If monetary policy is no longer working, there is a risk that the whole system will blow up in days," he said.

Watch out for the helicopters!

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With the two drops in cable over the past 2 days from 1.8450 to 1.8050 and thence to 1.7750 (now 1.7850 as i write)... is the market percieving a large IR cut soon here?

 

I think the market is expecting "a coordinated rate cut" by all (most) central banks.

 

 

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$LIBOR ... update

001po9.png

(remember, this contract is "upside-down", with Contract = 100 - Libor)

Daily close-up

46678250ol2.png

 

Libor Fixings `a Flimsy Theoretical Construct': Chart of Day

 

By Liz Capo McCormick

 

Oct. 6 (Bloomberg) -- The London interbank offered rate that banks charge each other for loans still isn't giving an accurate reflection of borrowing costs as the seizure in global credit markets deepens, according to Dresdner Kleinwort.

 

The CHART OF THE DAY shows three-month U.S. dollar Libor compared with the so-called New York funding rate of U.S. banks that ICAP Plc first began publishing on June 11 after investors began questioning the accuracy of the rates reported daily to the British Bankers' Association.

 

``With no interbank lending taking place, the daily Libor fixings are no more than a flimsy theoretical construct,'' said Christoph Rieger, a fixed-income strategist at Dresdner in Frankfurt. ``The ICAP New York funding rate is one of several pieces of evidence that Libors are understating.''

 

The New York funding rate, or NYFR, averaged 1.5 basis points over three-month U.S. dollar Libor through Sept. 12. It has averaged 36 basis points since Lehman Brothers Holdings Inc. collapsed on Sept. 15.

 

Prices in the over $2 trillion a day currency derivative markets now provide the best estimate of where true U.S. dollar Libor should be, according to Rieger. Three-month Libor should be about 200 basis points higher, he said.

 

The ICAP index is based on an anonymous daily survey of banks, with participants asked each morning to estimate the cost of funding for one- and three-month dollar loans to a representative bank. The results are published every day after 10 a.m. New York time.

 

The BBA asks 16 member banks, only three based in the U.S., how much it would cost to borrow from each other for 15 different periods in several currencies. It then calculates averages and publishes the results every day after 11:30 a.m. in London. Libor is used to calculate rates on $360 trillion of financial products ranging from company bonds and derivatives to U.S. mortgages.

 

/see: http://www.bloomberg.com/apps/news?pid=new...id=aVy7MtFItR88

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(Rate cuts? Sure. But will it show up in borrowing costs?):

 

Signal for interest rate cut

By Norma Cohen

Published: October 3 2008 10:13

 

A cut in UK interest rates next week looks likely, after a closely watched survey of the crucial services sector on Friday dropped at a record rate to a new low in its 12-year history.

 

Several economists have switched to forecasts of rate cuts when the Bank of England’s monetary policy committee meets next week, retreating from warnings that inflation was still too high to justify any rate cuts this year. Some of these economists expect an interest rate cut of up to half a percentage point next week.

 

Reuters poll of economists taken after the survey showed 49 out of 62 now expect rates to be lowered by at least a quarter of a percentage point after the MPC’s next meeting. In a previous poll a few days ago, only 21 out of 66 predicted a cut. The trigger for the change in outlook, economists said, was the purchasing managers’ index for the UK services sector.

 

/see: http://www.ft.com/cms/s/0/a640c212-9129-11...00779fd18c.html

 

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aa0ec0.gif

 

3 Month Libor =%

===========

End.Mar 2.68813

End.Jun 2.78313

End.July 2.79875

End.Aug 2.81063

09 / 05 : 2.81438

09 / 12 : 2.81875

09 / 19 : 3.21000

09 / 26 : 3.76188

 

/see: http://www.economagic.com/em-cgi/data.exe/libor/day-us3m

 

UP TO DATE : Libor : http://www.bloomberg.com.au/markets/rates/keyrates.html

========

------------------CURRENT 1 MONTH

------------------------PRIOR 3 MONTH

------------------------------PRIOR 6 MONTH

-----------------------------------PRIOR 1 YEAR

Fed. Target ... : 2.00 2.00 2.00 2.25 4.75

Prime Rate .... : 5.00 5.00 5.00 5.25 7.75

1-Month Libor. : 4.09 2.49 2.46 2.74 5.12

3-Month Libor. : 4.29 2.81 2.79 2.73 5.24 ::: 4.29% on Oct.6th

5-Year AAA ... :

Banking&Finan.: 5.83 4.90 4.80 4.19 5.16

10-Year AAA

Banking&Finan.: 7.07 5.86 5.79 5.32 5.71

 

 

Daily close-up

46678250ol2.png

 

Monday's 0.28% gain (a 28bp drop in libor) was the best in many weeks

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aa0ec0.gif

 

3 Month Libor =%

===========

End.Mar 2.68813

End.Jun 2.78313

End.July 2.79875

End.Aug 2.81063

09 / 05 : 2.81438

09 / 12 : 2.81875

09 / 19 : 3.21000

09 / 26 : 3.76188

 

/see: http://www.economagic.com/em-cgi/data.exe/libor/day-us3m

 

UP TO DATE : Libor : http://www.bloomberg.com.au/markets/rates/keyrates.html

========

------------------CURRENT 1 MONTH

------------------------PRIOR 3 MONTH

------------------------------PRIOR 6 MONTH

-----------------------------------PRIOR 1 YEAR

Fed. Target ... : 2.00 2.00 2.00 2.25 4.75

Prime Rate .... : 5.00 5.00 5.00 5.25 7.75

1-Month Libor. : 4.09 2.49 2.46 2.74 5.12

3-Month Libor. : 4.29 2.81 2.79 2.73 5.24 ::: 4.29% on Oct.6th

5-Year AAA ... :

Banking&Finan.: 5.83 4.90 4.80 4.19 5.16

10-Year AAA

Banking&Finan.: 7.07 5.86 5.79 5.32 5.71

 

 

Daily close-up

46678250ol2.png

 

Monday's 0.28% gain (a 28bp drop in libor) was the best in many weeks

 

 

Which is just as well as there would have been greater carnage out there today - someones doing a good massage job

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Eur-Ibor testing the old highs here, could this be the TURN?

 

http://www.kshitij.com/graphgallery/eurlib.shtml

 

News source:

http://us.ft.com/ftgateway/superpage.ft?cr...euro%20libor%22

 

=1/ when the crisis started:

Banks make their own liquidity a priority

 

By Michael Mackenzie in New York and David Oakley in London

Tuesday Sep 16 2008 14:40

Turmoil intensified across global money markets on Tuesday as banks stockpiled their holdings of cash and refused to lend to each other, prompting a surge in borrowing rates.

 

Central banks helped ease soaring overnight rates, while dollar loans were aggressively sought by many institutions in the interbank lending market so they could finance their US assets.

 

During morning trade in London, the overnight dollar rate briefly rose above 10 per cent before it was fixed at 6.44 per cent, more than double its setting of 3.11 per cent on Monday and triple last week's rate of 2.15 per cent. Overnight sterling rate jumped to 6.79 per cent from Monday's 5.49 per cent.

 

= 2/ yesterday

Funding fears send European banks tumbling

 

By Rachel Morarjee

Tuesday Oct 7 2008 05:10

European stocks sank back into negative territory erasing early gains on Tuesday as fears that banks need additional funding sent financial stocks tumbling.

 

After its biggest drop since 1987, the FTSE Eurofirst 300 extended its losses , down 0.4 per cent to 1000.90, with the loserboard reading like a list of the continent's largest banks.

 

Germany's Xetra Dax fell 0.5 per cent to 5,361.69 and in France the CAC 40 bucked the trend rising 0.6 per cent to 3,734.64. In London, the FTSE 100 fell 0.1 per cent to 4,584.3.

 

THAT WAS yesterday

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-1/

http://www.bloomberg.com/apps/news?pid=206...&refer=home

 

QUOTE

Libor Overnight Dollar Money Market Jumps to 3.94%, BBA Says (overnight)

 

By Lukanyo Mnyanda

 

Oct. 7 (Bloomberg) -- The cost of borrowing in dollars overnight jumped more than a percentage point, the British Bankers' Association said.

 

The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 157 basis points to 3.94 percent, BBA data showed today.

 

-2/

Fed to Purchase U.S. Commercial Paper to Ease Credit Crunch

 

By Craig Torres

 

Oct. 7 (Bloomberg) -- The Federal Reserve Board, invoking emergency powers, will create a special fund to backstop the U.S. commercial paper market in an effort to support the financing needs of corporations.

 

The move comes as the credit freeze spreads to the market for short-term debt that hundreds of companies use to finance payrolls and meet other cash needs.

 

The Fed said it will lend against a special purpose vehicle at the targeted federal funds rate. The unit will purchase from eligible issuers three-month dollar-denominated commercial paper at a spread over the three-month overnight-indexed swap rate, according to a press release in Washington today.

 

The Fed said the paper purchased by the vehicle must be rated at least A1/P1/F1. Issuers will pay the unit an upfront fee based on the commercial paper initially sold to the vehicle. The vehicle will cease buying commercial paper on April 30, 2009, unless the Board of Governors agrees to extend it.

 

The Fed yesterday said it will double its cash auctions to banks to as much as $900 billion, and telegraphed today's announcement by saying it was looking for other ways to alleviate liquidity strains.

 

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(Rate cuts? Sure. But will it show up in borrowing costs?):

 

Maybe then Gordon Brown will think whoops, I cant lean on the banks as I need Lloyds HBOS to happen. What have I done !!!!

 

Dammned if he does and dammned if he doesnt!

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LIE-bor.

 

$360tn depend on it.

 

No one would dare to put this rate up to its real value. Immediate total planetary financial destruction would follow.

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Amazingly (with the news background),

The traded $Libor contract is up +0.27%, signalling lower rates

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funnily enough, 1 month and 3 month Libor were down a bit yesterday

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Libor - a key bellwether for the Crisis (?)

"...should be about 200 basis points higher"

 

I will combine this thread with Steve N's: Libor!

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Amazingly (with the news background),

The traded $Libor contract is up +0.27%, signalling lower rates

 

Maybe on the opening, or something. But Bloomberg gives a different price:

 

1-Month Libor 4.14 2.49 2.46 2.72 5.12

3-Month Libor 4.32 2.81 2.79 2.71 5.24

 

/see: http://www.bloomberg.com.au/markets/rates/keyrates.html

 

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