By John Parry and Jamie McGeever
NEW YORK/LONDON, Nov 13 (Reuters) - Three-month interbank borrowing rates rose for the first time in a month on Thursday, telegraphing market concerns about the U.S. Treasury's turnaround on a plan to buy troubled assets.
U.S. banks trimmed their overall borrowings from the Federal Reserve in the latest week, although these remained at very high levels, showing the central bank is propping up the financial system almost single-handedly in the worst credit crisis since the Great Depression.
Banks' overall borrowings from the Fed averaged $322.93 billion per day in the week ended Nov. 12, down from an average $359.0 billion per day the week before.
In Europe, interbank lending rates eased gradually once again. Central banks conducted another round of daily money market operations, while short-dated European government bond yields fell to their lowest in years as expectations of deeper interest rate cuts intensified.
The interbank cost of three-month dollar borrowing inched higher on Thursday, breaking a 23-session losing streak, according to the latest daily fixing from the British Bankers' Association. For details, see
One of the factors that pushed up London interbank offered (Libor) rates after falling for the past month, is the U.S. Treasury's about face on the Troubled Asset Relief Program, or TARP, to buy toxic assets, said John Ryding, chief economist at RDQ Economics LLC.
'I am not surprised. First, (Libor has) come down an awful long way and there is some uncertainty in the market on the poor selling job about why the TARP strategy was changed,' Ryding said.
U.S. Treasury Secretary Henry Paulson on Wednesday said the government would focus the remainder of its $700 billion bailout fund on making direct investments in financial institutions and shoring up consumer credit markets.
The Treasury had initially promoted the financial rescue package approved by Congress last month as a vehicle to buy illiquid mortgage assets from banks and other institutions to spur fresh lending.
Rates also rose for borrowing dollars across all other maturities up to one-year. However, sterling and euro borrowing costs continued to fall.
After weeks of steady, gradual decline, the premium on Thursday for Libor over expected official policy rates measured by Overnight Index Swaps rose in euro and sterling markets.
Interest rate swap spreads, another closely-watched gauge of financial market stress, also widened, particularly in the two-year area.
Two-year U.S. swap spreads widened to 116.50 basis points in New York on Thursday from about 101 basis points a day earlier, signaling investors' risk aversion was rising.
'There's a slight improvement in that (nominal interbank) rates are coming down, but liquidity remains a big worry. The problem is that the people with money don't want to lend to the people without money,' said Ciaran O'Hagan, senior rates strategist at Societe Generale in Paris.
Banks continued to hoard cash, fearful that borrowers might be unable to repay short-term loans, and anticipating the typical year-end when funding pressures build.
The U.S. commercial paper market grew for a third straight week, but at a sharply lower rate since the Federal Reserve launched a program to buy this type of short term corporate debt in late October, Fed data showed on Thursday.
In the week ended Nov. 12, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, rose by a mere $2.9 billion to $1.603 trillion.
'Right now the commercial paper market is on Federal Reserve life support,' said John Ryding, chief economist at RDQ Economics LLC in New York.
Net portfolio holdings of the Fed's Commercial Paper Funding Facility, which is buying three-month top-rated commercial paper to unfreeze this key sector of short-term lending, were $257.29 billion as of Wednesday, up from $243.31 billion a week earlier.
'The Fed has gone from lender of last resort to lender of only resort in many of these markets,' Ryding said.
The Fed's measures to assist lending markets 'reduce the risk of systemic meltdown, but make it very hard to judge the underlying health of any of these markets,' he added.
The U.S. TED spread -- the spread between 3-month treasury bills and interbank rates -- narrowed to 170 basis points on Wednesday, far below the widest level of 460 basis points in October, but still double levels seen just before Lehman Brothers collapsed in mid-September.
(Reporting by John Parry and Jamie McGeever; additional reporting by Richard Leong in New York and Vidya Ranganathan in Singapore; editing by Gary Crosse) Keywords: MARKETS MONEY (John.Parry@thomsonreuters.com; +1-646-223-6303; Reuters Messaging: john.parry.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/LONDON, Nov 13 (Reuters) - Three-month interbank borrowing rates rose for the first time in a month on Thursday, telegraphing market concerns about the U.S. Treasury's turnaround on a plan to buy troubled assets.
U.S. banks trimmed their overall borrowings from the Federal Reserve in the latest week, although these remained at very high levels, showing the central bank is propping up the financial system almost single-handedly in the worst credit crisis since the Great Depression.
Banks' overall borrowings from the Fed averaged $322.93 billion per day in the week ended Nov. 12, down from an average $359.0 billion per day the week before.
In Europe, interbank lending rates eased gradually once again. Central banks conducted another round of daily money market operations, while short-dated European government bond yields fell to their lowest in years as expectations of deeper interest rate cuts intensified.
The interbank cost of three-month dollar borrowing inched higher on Thursday, breaking a 23-session losing streak, according to the latest daily fixing from the British Bankers' Association. For details, see
One of the factors that pushed up London interbank offered (Libor) rates after falling for the past month, is the U.S. Treasury's about face on the Troubled Asset Relief Program, or TARP, to buy toxic assets, said John Ryding, chief economist at RDQ Economics LLC.
'I am not surprised. First, (Libor has) come down an awful long way and there is some uncertainty in the market on the poor selling job about why the TARP strategy was changed,' Ryding said.
U.S. Treasury Secretary Henry Paulson on Wednesday said the government would focus the remainder of its $700 billion bailout fund on making direct investments in financial institutions and shoring up consumer credit markets.
The Treasury had initially promoted the financial rescue package approved by Congress last month as a vehicle to buy illiquid mortgage assets from banks and other institutions to spur fresh lending.
Rates also rose for borrowing dollars across all other maturities up to one-year. However, sterling and euro borrowing costs continued to fall.
After weeks of steady, gradual decline, the premium on Thursday for Libor over expected official policy rates measured by Overnight Index Swaps rose in euro and sterling markets.
Interest rate swap spreads, another closely-watched gauge of financial market stress, also widened, particularly in the two-year area.
Two-year U.S. swap spreads widened to 116.50 basis points in New York on Thursday from about 101 basis points a day earlier, signaling investors' risk aversion was rising.
'There's a slight improvement in that (nominal interbank) rates are coming down, but liquidity remains a big worry. The problem is that the people with money don't want to lend to the people without money,' said Ciaran O'Hagan, senior rates strategist at Societe Generale in Paris.
Banks continued to hoard cash, fearful that borrowers might be unable to repay short-term loans, and anticipating the typical year-end when funding pressures build.
The U.S. commercial paper market grew for a third straight week, but at a sharply lower rate since the Federal Reserve launched a program to buy this type of short term corporate debt in late October, Fed data showed on Thursday.
In the week ended Nov. 12, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, rose by a mere $2.9 billion to $1.603 trillion.
'Right now the commercial paper market is on Federal Reserve life support,' said John Ryding, chief economist at RDQ Economics LLC in New York.
Net portfolio holdings of the Fed's Commercial Paper Funding Facility, which is buying three-month top-rated commercial paper to unfreeze this key sector of short-term lending, were $257.29 billion as of Wednesday, up from $243.31 billion a week earlier.
'The Fed has gone from lender of last resort to lender of only resort in many of these markets,' Ryding said.
The Fed's measures to assist lending markets 'reduce the risk of systemic meltdown, but make it very hard to judge the underlying health of any of these markets,' he added.
The U.S. TED spread -- the spread between 3-month treasury bills and interbank rates -- narrowed to 170 basis points on Wednesday, far below the widest level of 460 basis points in October, but still double levels seen just before Lehman Brothers collapsed in mid-September.
(Reporting by John Parry and Jamie McGeever; additional reporting by Richard Leong in New York and Vidya Ranganathan in Singapore; editing by Gary Crosse) Keywords: MARKETS MONEY (John.Parry@thomsonreuters.com; +1-646-223-6303; Reuters Messaging: john.parry.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.