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Libor Has Biggest Drop in Eight Weeks as Credit Thaws (Update1)

Libor Has Biggest Drop in Eight Weeks as Credit Thaws (Update1)
By Anna Rascouet

May 14 (Bloomberg) -- The cost of borrowing in dollars for three months between banks dropped the most in eight weeks as government and central bank efforts to unlock credit markets showed signs of bearing fruit.

The London interbank offered rate, or Libor, for such loans fell almost three basis points to 0.85 percent today, according to the British Bankers’ Association. The Libor-OIS spread, a gauge of the reluctance of banks to offer each other cash, narrowed three basis points to 65 basis points, the lowest level since June 16.

Libor, a benchmark gauge for about $360 trillion of financial products around the world from student loans to mortgages, has tumbled as the U.S. government and the Federal Reserve pledged $12.8 trillion to drag the economy out of its longest recession since the 1930s.

“I wouldn’t say that nothing can stop Libor’s fall, but there isn’t enough out there to cause any big panic,” said Padhraic Garvey, head of investment-grade debt strategy at ING Groep NV in Amsterdam. “So far so good.”

Libor hasn’t fallen so much since March 19, the day after the Fed said it would buy as much as $300 billion of U.S. government bonds and step up purchases of mortgage and agency bonds to revive growth.

To contact the reporter on this story: Anna Rascouet in London at [e-mail]
Last Updated: May 14, 2009 07:05 EDT


LINK: http://www.bloomberg.com/apps/news?pid=20601087&sid=alENGPbYEIsE&refer=home