By Richard Leong
NEW YORK, Nov 6 (Reuters) - Banks trimmed rates at which they lend to each other ahead of rate cuts from several European banks, led by Bank of England's whopping 1.50 percentage point move, on Thursday.
The decline in interbank rates is approaching a one-month milestone as a massive government move to thaw the global credit freeze has taken hold.
Banks have relied less heavily on the U.S. Federal Reserve for cash in the latest week, but they were still borrowing from the Fed's discount window at historically high levels, according to Fed data released Thursday. For more,
Revived activity in the U.S. commercial paper market added to continued improvement in bank lending conditions, offering another option for companies to fund their daily operations, analysts said.
'This will help the interbank market, as will the reduced reliance that U.S. companies will have on bank credit lines as a result of the reopening of the CP market,' said Tony Crescenzi, chief bond market strategist with Miller Tabak & Co in New York.
An energized commercial paper market can be largely attributed to a Fed program to buy this type of paper, sending the Fed's balance sheet to a record above $2 trillion in the week ended Nov 7.
The most dramatic move in the closely watched unsecured lending market in London was in sterling, as traders had anticipated a half percentage point cut from the BoE.
The overnight interbank rate on sterling fell to 4.00000 percent, its lowest since August 2004, according to the British Bankers' Association's daily fixings on Thursday.
Euro and dollar Libor levels also fell.
After daily BBA fixings were set, the British central bank surprised the market and slashed benchmark rates by 1.50 points to 3.00 percent, the lowest since 1954. The size of the rate cut was the biggest since the recession in 1981.
The European Central Bank, Swiss National Bank and Denmark's central bank followed with half-point cuts.
The easing in policy rates has been among the numerous measures central banks have been using to unlock credit and avert a deep, protracted global recession.
In Asia, there were signs the credit crunch is easing, albeit gradually, in the region's worst-hit centers like South Korea and Indonesia. For example, South Korean three-month certificate of deposit rates eased to 5.92 percent, about 26 basis points off a peak hit last month.
CP ACTIVITY REVIVED
The supply of U.S. commercial paper rose on Wednesday for the first time in five sessions, signaling revived activity in this credit sector, according to Federal Reserve data released on Thursday. For more, see
Overall issuance of this type of short-dated corporate IOUs was $158.84 billion on Wednesday, up from the $148.97 billion on Tuesday.
Last week the Fed launched a program to buy top-rated, three-month commercial paper to buttress this critical source of funding for many U.S. companies. The backstop measure caused a brief spike in daily issuance and the amount of CP outstanding, which had been shrinking prior to the start of the Fed's Commercial Paper Funding Facility.
For the week ended Nov 5. the size of the U.S. commercial paper market rose to $1.600 trillion, from $1.550 trillion the previous week.
'With today's and last week's figures, it is obvious that a bottom in the commercial paper market is in place,' Miller's Crescenzi said.
Commercial paper issuers have sold vast amounts three-month debt to the Fed since the CPFF began on Oct 27. On Wednesday, CPFF assets stood at $243.31 billion, up sharply from $144.81 billion a week earlier.
(Additional reporting by John Parry and Ellen Freilich in New York, Jamie McGeever in London and Vidya Ranganathan in Singapore, Editing by Chizu Nomiyama) Keywords: MARKETS MONEY (richard.leong@thomsonreuters.com ; +1 646 223 6313; Reuters Messaging: richard.leong.reuters.com@reuters.net ) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Nov 6 (Reuters) - Banks trimmed rates at which they lend to each other ahead of rate cuts from several European banks, led by Bank of England's whopping 1.50 percentage point move, on Thursday.
The decline in interbank rates is approaching a one-month milestone as a massive government move to thaw the global credit freeze has taken hold.
Banks have relied less heavily on the U.S. Federal Reserve for cash in the latest week, but they were still borrowing from the Fed's discount window at historically high levels, according to Fed data released Thursday. For more,
Revived activity in the U.S. commercial paper market added to continued improvement in bank lending conditions, offering another option for companies to fund their daily operations, analysts said.
'This will help the interbank market, as will the reduced reliance that U.S. companies will have on bank credit lines as a result of the reopening of the CP market,' said Tony Crescenzi, chief bond market strategist with Miller Tabak & Co in New York.
An energized commercial paper market can be largely attributed to a Fed program to buy this type of paper, sending the Fed's balance sheet to a record above $2 trillion in the week ended Nov 7.
The most dramatic move in the closely watched unsecured lending market in London was in sterling, as traders had anticipated a half percentage point cut from the BoE.
The overnight interbank rate on sterling fell to 4.00000 percent, its lowest since August 2004, according to the British Bankers' Association's daily fixings on Thursday.
Euro and dollar Libor levels also fell.
After daily BBA fixings were set, the British central bank surprised the market and slashed benchmark rates by 1.50 points to 3.00 percent, the lowest since 1954. The size of the rate cut was the biggest since the recession in 1981.
The European Central Bank, Swiss National Bank and Denmark's central bank followed with half-point cuts.
The easing in policy rates has been among the numerous measures central banks have been using to unlock credit and avert a deep, protracted global recession.
In Asia, there were signs the credit crunch is easing, albeit gradually, in the region's worst-hit centers like South Korea and Indonesia. For example, South Korean three-month certificate of deposit rates eased to 5.92 percent, about 26 basis points off a peak hit last month.
CP ACTIVITY REVIVED
The supply of U.S. commercial paper rose on Wednesday for the first time in five sessions, signaling revived activity in this credit sector, according to Federal Reserve data released on Thursday. For more, see
Overall issuance of this type of short-dated corporate IOUs was $158.84 billion on Wednesday, up from the $148.97 billion on Tuesday.
Last week the Fed launched a program to buy top-rated, three-month commercial paper to buttress this critical source of funding for many U.S. companies. The backstop measure caused a brief spike in daily issuance and the amount of CP outstanding, which had been shrinking prior to the start of the Fed's Commercial Paper Funding Facility.
For the week ended Nov 5. the size of the U.S. commercial paper market rose to $1.600 trillion, from $1.550 trillion the previous week.
'With today's and last week's figures, it is obvious that a bottom in the commercial paper market is in place,' Miller's Crescenzi said.
Commercial paper issuers have sold vast amounts three-month debt to the Fed since the CPFF began on Oct 27. On Wednesday, CPFF assets stood at $243.31 billion, up sharply from $144.81 billion a week earlier.
(Additional reporting by John Parry and Ellen Freilich in New York, Jamie McGeever in London and Vidya Ranganathan in Singapore, Editing by Chizu Nomiyama) Keywords: MARKETS MONEY (richard.leong@thomsonreuters.com ; +1 646 223 6313; Reuters Messaging: richard.leong.reuters.com@reuters.net ) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.