U.S. Interbank Lending Rates Continue to Fall

Interbank lending rates in the United States continued to decline on Tuesday with the three-month lending rates according to the British Bankers' Association (LIBOR) falling to 3.83375% and overnight rates declining to 1.28125%, adding further credence to a thawing of credit conditions in the region.

"The general tone in markets continues to ease back from the stress of the past several weeks," explained RBC Capital Markets fixed income strategist TJ Marta. "Libor rates are easing for both US$ deposits and those in other currencies, providing evidence of the thawing in short term lending."

The figures represent an ongoing decline in the three-month LIBOR, which peaked at 4.82% on Oct. 10 as the credit crunch in the United States intensified.

After reaching a monthly high of 5.387% on Oct. 8, overnight lending is now at 1.28125%, falling below the Fed's 1.50% target for the first time since Oct. 3.

According to traders, Monday's 400-point rally in the Dow Jones industrial average was due to speculation that interest rates could decline and the flow of credit resume.

"Equity markets were up almost universally in Asia and Europe. Of course, a gentle nudge from one's government always helps," Marta added. "Adding to recent global, government intervention, the French government announced it will invest $14bn into the nation's banks in order to spur them to lend."

By Erik Kevin Franco and edited by Nancy Girgis
©CEP News Ltd. 2008