By Richard Leong and George Matlock
NEW YORK/LONDON, July 17 (Reuters) - Interbank rates on three-month dollars, euros and sterling posted record lows on Friday, as mostly solid earnings bolstered confidence in a U.S. economic recovery and lowered lending premiums.
Disappointing second-quarter results from Bank of America and Citigroup pared some hopes of growth resuming in the near future, analysts and traders said.
Investors also monitored CIT Group's scramble for cash to stave off bankruptcy, and concluded its demise will inflict minimal damage to the financial system.
'The CIT story is on everyone's radar, but it has not affected the money market,' said Deborah Cunningham, chief investment officer of money markets with Federated Investors in Pittsburgh.
On Friday, CIT, a major lender to U.S. small and medium businesses, is said to be in talks with JPMorgan & Chase and Goldman Sachs to secure short-term financings. For more, see
Earlier this week, JPMorgan, the No. 2 U.S. bank by assets and Goldman, the biggest U.S. securities firm, reported surprisingly strong quarterly results, sparking this week's rally on Wall Street and demand for other risky assets.
On Friday, Bank of America and Citigroup, the No. 1 and No. 3 U.S. banks by assets, fell short of the elevated expectations set by Goldman and JPMorgan.
Despite those results misses, analysts said overall lending conditions continued to improve.
The three-month London interbank offered rate (Libor) for dollars eased to 0.50375 percent, setting a record low for a second day.
Equivalent three-month Libor for euros and sterling also hit fresh lows at 0.94000 percent and 0.96025 percent.
For more on Friday's Libor fixings, see
MOST RISK PREMIUMS FALL
The spreads of three-month Libor over Overnight Indexed Swap (OIS) rates for dollars, euros and sterling all narrowed a touch as investors perceived that any fallout from struggling U.S. commercial lender CIT Group will likely be limited.
The OIS spreads express the three-month premium paid over anticipated central bank rates, or Overnight Index Swap rates and are seen as a gauge of banks' willingness to lend to each other -- a narrower spread is seen as an indication of increased inclination to lend.
'OIS tightening is to be expected, especially with the warm glow the market has basked in this week from earnings surprises,' said Peter Chatwell, a market strategist at Calyon in London.
The spread between three-month dollar Libor and three-month OIS shrank to 32 basis points from 34 basis points Thursday.
The gap between three-month Libor and three-month Treasury bills edged to 33 basis points from 34 basis points Thursday.
The risk premiums on dollar interest rate swaps rose on Friday, as a renewed sell-off in Treasuries heightened the risk investors will unwind their swap hedges.
Investors reduce their swap hedges as yields rise sharply because they become added drag on their mortgage investments. For more, see
The spread of two-year interest rate swaps grew to 47.75 basis points -- the widest in nearly a month -- from 44.50 basis points on Thursday.
The spread on ten-year swaps moved out to 23.25 basis points from 21.75 basis points late on Thursday.
(Reporting by Richard Leong; Editing by Diane Craft) Keywords: MARKETS MONEY (richard.leong@thomsonreuters.com ; +1 646 223 6313; Reuters Messaging: richard.leong.reuters.com@reuters.net ) COPYRIGHT Copyright Thomson Reuters 2009. 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, July 17 (Reuters) - Interbank rates on three-month dollars, euros and sterling posted record lows on Friday, as mostly solid earnings bolstered confidence in a U.S. economic recovery and lowered lending premiums.
Disappointing second-quarter results from Bank of America and Citigroup pared some hopes of growth resuming in the near future, analysts and traders said.
Investors also monitored CIT Group's scramble for cash to stave off bankruptcy, and concluded its demise will inflict minimal damage to the financial system.
'The CIT story is on everyone's radar, but it has not affected the money market,' said Deborah Cunningham, chief investment officer of money markets with Federated Investors in Pittsburgh.
On Friday, CIT, a major lender to U.S. small and medium businesses, is said to be in talks with JPMorgan & Chase and Goldman Sachs to secure short-term financings. For more, see
Earlier this week, JPMorgan, the No. 2 U.S. bank by assets and Goldman, the biggest U.S. securities firm, reported surprisingly strong quarterly results, sparking this week's rally on Wall Street and demand for other risky assets.
On Friday, Bank of America and Citigroup, the No. 1 and No. 3 U.S. banks by assets, fell short of the elevated expectations set by Goldman and JPMorgan.
Despite those results misses, analysts said overall lending conditions continued to improve.
The three-month London interbank offered rate (Libor) for dollars eased to 0.50375 percent, setting a record low for a second day.
Equivalent three-month Libor for euros and sterling also hit fresh lows at 0.94000 percent and 0.96025 percent.
For more on Friday's Libor fixings, see
MOST RISK PREMIUMS FALL
The spreads of three-month Libor over Overnight Indexed Swap (OIS) rates for dollars, euros and sterling all narrowed a touch as investors perceived that any fallout from struggling U.S. commercial lender CIT Group will likely be limited.
The OIS spreads express the three-month premium paid over anticipated central bank rates, or Overnight Index Swap rates and are seen as a gauge of banks' willingness to lend to each other -- a narrower spread is seen as an indication of increased inclination to lend.
'OIS tightening is to be expected, especially with the warm glow the market has basked in this week from earnings surprises,' said Peter Chatwell, a market strategist at Calyon in London.
The spread between three-month dollar Libor and three-month OIS shrank to 32 basis points from 34 basis points Thursday.
The gap between three-month Libor and three-month Treasury bills edged to 33 basis points from 34 basis points Thursday.
The risk premiums on dollar interest rate swaps rose on Friday, as a renewed sell-off in Treasuries heightened the risk investors will unwind their swap hedges.
Investors reduce their swap hedges as yields rise sharply because they become added drag on their mortgage investments. For more, see
The spread of two-year interest rate swaps grew to 47.75 basis points -- the widest in nearly a month -- from 44.50 basis points on Thursday.
The spread on ten-year swaps moved out to 23.25 basis points from 21.75 basis points late on Thursday.
(Reporting by Richard Leong; Editing by Diane Craft) Keywords: MARKETS MONEY (richard.leong@thomsonreuters.com ; +1 646 223 6313; Reuters Messaging: richard.leong.reuters.com@reuters.net ) COPYRIGHT Copyright Thomson Reuters 2009. 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.