A look at Euribor, GBP Libor, and Libor

The graph below shows that despite different base rates in the US, UK, and Europe that our general interbank lending rates are correlated.

One of the issues the US has been struggling with is to get their long term rates down and you can see in the 5-7 year money range (I don’t have the 10yr TNote figures to hand), the idea is to get lending kick-started again, credit flowing is healthy, just not at the bubble levels. The 5yr figure is significant for personal lending and financing away from credit cards via personal facilities.

On the GBP Libor and Euribor the two yield curves are roughly matched so despite the UK having a base rate which is a full 75bips less than the ECB base they are still trading at higher margins. This is down to historic money pricing in the UK and it shows that Europe is truly pursuing a ‘middle of the road’ approach to rates, while the media focus is purely on the base rate …

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predictions for 2008

I have five minutes to go before I have to leave so here are a few of my predictions for 2008

I had mentioned buying northern rock shares a while back, and i am pleased to see they took a 7% jump in the last few days. I think the rationale holds true, there is too much at stake for government to allow them to go bust, mainly because the Bank of England gave it more support than it ever should have. This predictions looks likely to come to a good end, just not for most of the shareholders

Next, I have a new prediction for today, and it has to do with the 40 billion cash injection that the Fed gave the market, the base rate may not get cut in the early new year but I have a feeling that the US interest rate will go down further, maybe as low as 3% before this worldwide crunch is over. The problem still boils down to interbank distrust because their rates are extraordinarily high. the Euribor hasn’t come down …

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Credit Freeze and the effects on the ECB

The credit markets in the U.S.A., Asia, and Europe are in the midst of a freeze at the moment. Banks are not willing to lend to each other hence the big hike in the Euribor (European inter bank ordinary rate: this is the rate that banks lend to each other at) rates and in the U.K. the Libor (London inter bank ordinary rate) rates, they are trading much higher than the central bank rates and this indicates that there is (to a degree) a general mistrust between banks, mainly because they don’t know the exposure to sub-prime exposure the other may have.

The response thus far has been a Fed rate cut, this came a little late, and the indication is that Ben Bernanke will cut the rates again within the next week. Earlier in the year (March 28th) Bernanke claimed that ‘the impact on the broader economy & financial markets of the problems in the sub-prime market are likely to be contained’. Later in June he again re-iterated that there was not a strong chance of a spill-over into …

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