Libor Rises a Fourth Day as Banks Hoard Cash After Bill Passed
By Gavin Finch and Lukanyo Mnyanda
Oct. 2 (Bloomberg) -- The cost of borrowing in dollars in London for three months rose for a fourth day, signaling that banks haven't started to lend after the U.S. Senate approved a $700 billion plan to rescue beleaguered financial institutions.
The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 6 basis points to 4.21 percent today, the highest since Jan. 11, the British Bankers' Association said. The corresponding rate for euros advanced 3 basis points to a record 5.32 percent. The Libor-OIS spread, a gauge of cash scarcity among banks, widened to a record.
``We still see upward pressure on maturities from one week,'' said Patrick Jacq, a fixed-income strategist in Paris at BNP Paribas SA, France's biggest bank. ``The situation is still blocked and we're unlikely to see spreads decline before confidence has been restored.''
Credit markets have frozen as financial institutions hoard cash to meet future funding needs amid deepening concern that more banks will collapse. Libor, set by 16 banks in a daily survey by the British Bankers' Association, is used to set rates on $360 trillion of financial products worldwide, from home loans to derivatives.
The U.S. Senate passed the Bush administration's bank- rescue package yesterday with inducements for the House of Representatives to approve the measure after an earlier version was rejected. The legislation, approved on a 74-25 vote, authorizes the government to buy troubled assets from banks rocked by record home foreclosures.
Bank Rescues
Interbank rates have soared as governments in Europe and the U.S. rescued six financial institutions in the past week. The Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, widened to a record 260 basis points today. It was at 197 basis points a week ago and 79 basis points a month ago.
Rates in Asia rose earlier. The cost of borrowing in dollars in Singapore for three months surged to 4.16 percent today, the highest since Jan. 11. The rate in Hong Kong, known as Hibor, climbed 13 basis points to 3.79 percent.
``There are a lot of bids but no offers,'' said Pang Meng Yam, a money-market dealer at KBC Bank NV in Singapore. ``There's no lending, most money markets are frozen and the discrepancy between the benchmark rates and the actual trading rates are getting wider.''
Financial institutions worldwide posted $588 billion of writedowns and losses tied to U.S. subprime mortgages since the start of last year, according to data compiled by Bloomberg.
Libor Rises a Fourth Day as Banks Hoard Cash After Bill Passed
By Gavin Finch and Lukanyo Mnyanda
Oct. 2 (Bloomberg) -- The cost of borrowing in dollars in London for three months rose for a fourth day, signaling that banks haven't started to lend after the U.S. Senate approved a $700 billion plan to rescue beleaguered financial institutions.
The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 6 basis points to 4.21 percent today, the highest since Jan. 11, the British Bankers' Association said. The corresponding rate for euros advanced 3 basis points to a record 5.32 percent. The Libor-OIS spread, a gauge of cash scarcity among banks, widened to a record.
``We still see upward pressure on maturities from one week,'' said Patrick Jacq, a fixed-income strategist in Paris at BNP Paribas SA, France's biggest bank. ``The situation is still blocked and we're unlikely to see spreads decline before confidence has been restored.''
Credit markets have frozen as financial institutions hoard cash to meet future funding needs amid deepening concern that more banks will collapse. Libor, set by 16 banks in a daily survey by the British Bankers' Association, is used to set rates on $360 trillion of financial products worldwide, from home loans to derivatives.
The U.S. Senate passed the Bush administration's bank- rescue package yesterday with inducements for the House of Representatives to approve the measure after an earlier version was rejected. The legislation, approved on a 74-25 vote, authorizes the government to buy troubled assets from banks rocked by record home foreclosures.
Bank Rescues
Interbank rates have soared as governments in Europe and the U.S. rescued six financial institutions in the past week. The Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, widened to a record 260 basis points today. It was at 197 basis points a week ago and 79 basis points a month ago.
Rates in Asia rose earlier. The cost of borrowing in dollars in Singapore for three months surged to 4.16 percent today, the highest since Jan. 11. The rate in Hong Kong, known as Hibor, climbed 13 basis points to 3.79 percent.
``There are a lot of bids but no offers,'' said Pang Meng Yam, a money-market dealer at KBC Bank NV in Singapore. ``There's no lending, most money markets are frozen and the discrepancy between the benchmark rates and the actual trading rates are getting wider.''
Financial institutions worldwide posted $588 billion of writedowns and losses tied to U.S. subprime mortgages since the start of last year, according to data compiled by Bloomberg.
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