From today’s Financial Times (here’s the main point: “While rates are coming down, traders say money market funds are still not willing to lend to banks at this juncture. The bulk of activity is being done through money market and commercial paper programmes instituted by the Fed, reinforcing the central bank’s role as lender of sole resort.”):
Dollar lending rate reflects crunch easing
By Michael Mackenzie in New York
Tuesday Nov 4 2008 14:20
The benchmark floating rate for dollar lending on Tuesday fell below the level that prior to the bankruptcy of Lehman Brothers (NYSE:LEH) in mid-September, providing a further sign that the credit crunch is slowly easing.
The decline in the three-month dollar London Interbank Offered Rate, however lags behind the Federal Reserve’s action in cutting its overnight rate in half to 1 per cent last month. Interest rate futures price in a further cut for the Fed’s rate to at least 0.75 per cent by the end of the year.
At a setting of 2.71 per cent on Tuesday, the Libor benchmark for floating rate loans, mortgages and interest rate derivatives was below the 2.82 per cent level of early September. Libor has dropped from a peak of 4.82 per cent in early October when lending across the money and commercial paper markets halted.