Has 1-Month LIBOR Bottomed? Fed Discount Rate Update ($LIBOR, Primary Credit Rate)

Interesting movement going on in 1-month rate land. LIBOR is the London Interbank Offered Rate and is a "trimmed average of inter-bank deposit rates offered by designated contributor banks, for maturities ranging from overnight to one year" (Wikipedia). LIBOR rates are also used to price or adjust variable-rates when economic conditions change. On January 11, 2010 I thought there had to be a spike at some point, look at the chart. 1-Month LIBOR stood at 0.233 on 1/11/2010 and it just spiked to 0.2472 a few days ago.

The rate is still VERY LOW compared to the 4.58% peak at the height of the financial crisis (10/9/2008 charts). In February the Fed raised the Discount Rate by 25 basis points to 0.75%. It will be interesting to see how the pricing of debt changes going forward, as well as how precious metals and the Dollar react. The Fed is giving everybody cheap money which could bring on the next 2007-esque ZIRP (zero interest rate policy) funded LBO boom, if a double dip recession doesn't ruin the bash...

$LIBOR 1-Month Rate (Courtesy of Stockcharts.com)

Fed Discount Rate (Primary Credit Rate, DPCREDIT) - St. Louis Fed

Visit the Fed discount window at http://www.frbdiscountwindow.org/.

Comments

  1. 14 bps in a few days is significant, seems to be pricing in at least a correction.

    ReplyDelete
  2. Once interest rate uncertainty and volatility hits I bet the market won't like that.

    ReplyDelete
  3. "We have to be very careful sir! We don't know if we'll get our money back, we're not sure at what rate to lend."

    "Well then, let's not lend it."

    "Very good, sir."

    "I'd like to withdraw a bit to go and get myself a sandwich."

    "Terribly sorry sir, since you decided not to lend it seems there's no money at all."

    "What?"

    "Yes, I'm afriad without lending it all ceased to exist."

    "But that was the whole point of not lending it!"

    "Indeed sir."

    ReplyDelete

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