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Money-Market Rates Rise, Defy Central Bank Measures
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Money-Market Rates Rise, Defy Central Bank Measures (Update4)
By Gavin Finch
March 25 (Bloomberg) -- The cost of borrowing in dollars, euros and pounds for three months or less rose as efforts by policy makers to revive lending failed to stop banks from hoarding cash.
The three-month London interbank offered rate, or Libor, for dollars increased 5 basis points to 2.66 percent, the highest level since March 14, the British Bankers' Association said today. The comparable euro rate climbed 2 basis points to 4.70 percent, the highest since Dec. 27.
``There's really only a handful of banks that are offering cash,'' said Ronald Tharun, a money-market trader at a unit of Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank. ``Everyone is just waiting for the next bank to go down. There is no trust in the market. They're very afraid.''
Banks are unwilling to lend to all but the safest borrowers after at least $200 billion in losses and writedowns since the start of 2007. Bear Stearns Cos. had to be rescued by JPMorgan Chase & Co. last week after a run on the bank. Central banks agreed this month to inject $240 billion into the banking system to counter the credit squeeze.
Credit losses linked to the collapse of the U.S. subprime- mortgage market will probably swell to $460 billion, Andrew Tilton, New York-based senior economist at Goldman Sachs Group Inc., wrote in a report yesterday.
Central Bank Loans
The difference between the rate banks charge for three-month dollar loans relative to the overnight indexed swap rate showed a decline in the availability of cash today. The so-called Libor- OIS spread widened 7 basis points to 64 basis points. It averaged 8 basis points in the first half of 2007.
The cost of borrowing in euros rose even after the European Central Bank provided 216 billion euros ($336.5 billion) of cash to banks today, 50 billion euros more than it estimated was needed. The marginal rate was 4.23 percent, up from 4.16 percent last week.
The ECB also said it loaned banks $15 billion for 28 days in a separate dollar auction with the Federal Reserve. The Fed said it received 88 bidders at its auction of $50 billion of loans yesterday.
``There's still a lot of uncertainty in the market,'' said Jan Misch, money-market trader at Landesbank Baden-Wuerttemberg in Stuttgart. ``Banks are hesitant to lend among each other and nervous due to the closing of the quarter.''
`Credit Bubble'
The three-month rate for pounds climbed 1 basis point to 6 percent, its 11th straight increase, according to the BBA. The Bank of England injected an extra 5 billion pounds ($10 billion) in loans last week.
Concerted central bank action announced Dec. 12 temporarily eased the credit shortage at the end of last year. Still, money- market rates began rising again this month, prompting a second round of emergency lending.
``Institutions still have written off less than half of the losses associated with the bursting of the credit bubble,'' Goldman Sachs's Tilton wrote. ``There is light at the end of the tunnel, but it's still rather dim.''
Merrill Lynch & Co. fell for the first time in three days today after JPMorgan cut its 2008 profit estimate for the third- largest U.S. securities firm by 45 percent on concern that further writedowns may reduce earnings.
Merrill slipped 93 cents, or 1.9 percent, to $47.45 by 11:26 a.m. in New York Stock Exchange composite trading. The stock has fallen 44 percent over the past year, compared with a 27 percent decline in the Standard and Poor's 500 Financials Index.
By Gavin Finch
March 25 (Bloomberg) -- The cost of borrowing in dollars, euros and pounds for three months or less rose as efforts by policy makers to revive lending failed to stop banks from hoarding cash.
The three-month London interbank offered rate, or Libor, for dollars increased 5 basis points to 2.66 percent, the highest level since March 14, the British Bankers' Association said today. The comparable euro rate climbed 2 basis points to 4.70 percent, the highest since Dec. 27.
``There's really only a handful of banks that are offering cash,'' said Ronald Tharun, a money-market trader at a unit of Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank. ``Everyone is just waiting for the next bank to go down. There is no trust in the market. They're very afraid.''
Banks are unwilling to lend to all but the safest borrowers after at least $200 billion in losses and writedowns since the start of 2007. Bear Stearns Cos. had to be rescued by JPMorgan Chase & Co. last week after a run on the bank. Central banks agreed this month to inject $240 billion into the banking system to counter the credit squeeze.
Credit losses linked to the collapse of the U.S. subprime- mortgage market will probably swell to $460 billion, Andrew Tilton, New York-based senior economist at Goldman Sachs Group Inc., wrote in a report yesterday.
Central Bank Loans
The difference between the rate banks charge for three-month dollar loans relative to the overnight indexed swap rate showed a decline in the availability of cash today. The so-called Libor- OIS spread widened 7 basis points to 64 basis points. It averaged 8 basis points in the first half of 2007.
The cost of borrowing in euros rose even after the European Central Bank provided 216 billion euros ($336.5 billion) of cash to banks today, 50 billion euros more than it estimated was needed. The marginal rate was 4.23 percent, up from 4.16 percent last week.
The ECB also said it loaned banks $15 billion for 28 days in a separate dollar auction with the Federal Reserve. The Fed said it received 88 bidders at its auction of $50 billion of loans yesterday.
``There's still a lot of uncertainty in the market,'' said Jan Misch, money-market trader at Landesbank Baden-Wuerttemberg in Stuttgart. ``Banks are hesitant to lend among each other and nervous due to the closing of the quarter.''
`Credit Bubble'
The three-month rate for pounds climbed 1 basis point to 6 percent, its 11th straight increase, according to the BBA. The Bank of England injected an extra 5 billion pounds ($10 billion) in loans last week.
Concerted central bank action announced Dec. 12 temporarily eased the credit shortage at the end of last year. Still, money- market rates began rising again this month, prompting a second round of emergency lending.
``Institutions still have written off less than half of the losses associated with the bursting of the credit bubble,'' Goldman Sachs's Tilton wrote. ``There is light at the end of the tunnel, but it's still rather dim.''
Merrill Lynch & Co. fell for the first time in three days today after JPMorgan cut its 2008 profit estimate for the third- largest U.S. securities firm by 45 percent on concern that further writedowns may reduce earnings.
Merrill slipped 93 cents, or 1.9 percent, to $47.45 by 11:26 a.m. in New York Stock Exchange composite trading. The stock has fallen 44 percent over the past year, compared with a 27 percent decline in the Standard and Poor's 500 Financials Index.
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