Strategies employed by global central banks are working

Today the interbank cost of borrowing US dollars for 3-months fell below 50 basis points for the first time in recorded BBA history. Accordingly, many economists have concluded that the strategies employed by global central banks over the last two years are working and that the systemic risks that existed post-Lehman are now gone. Although a bit thawed, it is clear that the credit markets have not yet returned to normal. Given that USD Libor is still roughly 30 bps above the Fed Funds rate, it appears that parity may be achieved well before year-end. Does this mean that Libor will continue to fall until Fed Funds parity is met or is USD Libor in a terminal decline?

Here is where global banks actually borrowed 3-month US dollars versus the BBA’s .49625%:

Australian Bank: .28%; UK Bank: .32%; UK Bank: .44%; Japanese Bank: .55%; Swedish Bank: .65%; Belgian Bank .80%

Here is a summary of the day-to-day changes in the global money markets:

US O/N LIBOR: .22688% vs. .22313% Friday
US 1M LIBOR: .28750% vs. .28500% Friday
US 3M LIBOR: .49625% vs. .50188% Friday
EUR 3M LIBOR: .89188% vs. .89875% Friday
GBP 3M LIBOR: .91438% vs. .92463% Friday
3M USD/OIS Spread: 30.33 vs. 30.09 Friday
3M EU/OIS Spread: 46.90 vs. 47.45 Friday
3M GBP/OIS Spread: 49.49 vs. 49.76 Friday
Effective Fed Funds: 16 vs. 15bps Friday
TED: 31.57 vs. 31.93 Friday
DXY: 78.42 vs. 78.65 Friday
VIX: 23.09 (Fri.) vs. 23.43 (Thurs.)
CVIX: 13.10 (Fri.) vs. 13.41 (Thurs.)


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Amegy Bank N.A.

Kenneth Hogan
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Corporate Foreign Exchange

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