Cost of borrowing falls further
Interbank lending rates fall overnight. Treasury prices mixed with the 30-year bond declining on renewed confidence about the future.
The 3-month Libor rate dropped to 2.39% from 2.51% on Wednesday, according to Bloomberg.com. Thursday's rate is the lowest since Nov. 25, 2004, when it was also 2.39%.
The overnight Libor rate rose slightly, bouncing off an all-time low, to 0.33% from 0.32%. The rate had been falling for 7 days in a row.
Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend dollars in the U.K. and is a key barometer of liquidity in the credit market.
Libor rates have been retreating since mid-October, when the Federal Reserve flooded 13 central banks around the globe with unlimited amounts of dollars.
Less than a month ago, 3-month Libor was at 4.82%, and the overnight rate was at an all-time high of 6.88%. Lower rates are a major boon for the troubled credit markets because more than $350 trillion in assets are tied to Libor.
"Banks are beginning to come into line," said Bob Brusca, economist at Fact and Opinion Economics in New York. "But the real question is the economy."
While banks are becoming more willing to lend to each other, they remain reluctant to lend to customers, which hampers economic activity, Brusca said.
"When economic conditions get bad, banks pull back. That makes economic conditions even worse, and banks pull back more. It's a vicious circle," he said.
Central banks world wide have taken unprecedented steps to shore up the economy amid growing sings of a global recession.
Thursday, November 6, 2008
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