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andydtaylor

Libor Rises To 5.7 Per Cent

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I thought this was interesting. Today, Libor made its biggest daily gain in three weeks. Found this out whilst I was looking into the mysterious HBOS.L drop over the last 2 days:

http://business.timesonline.co.uk/tol/busi...icle3448775.ece

Either this intra-bank lending issue settles down and we have a new economic paradigm, or this is going to cause major economic upset. If there is anyone who does analysis around funding rates for a living, have you got anything you can share about the medium term outlook? How quickly might this risk premium on top of Libor cause detrimental effects throughout the system?

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I thought this was interesting. Today, Libor made its biggest daily gain in three weeks. Found this out whilst I was looking into the mysterious HBOS.L drop over the last 2 days:

http://business.timesonline.co.uk/tol/busi...icle3448775.ece

Either this intra-bank lending issue settles down and we have a new economic paradigm, or this is going to cause major economic upset. If there is anyone who does analysis around funding rates for a living, have you got anything you can share about the medium term outlook? How quickly might this risk premium on top of Libor cause detrimental effects throughout the system?

LIBOR is still below the BoE penalty rate, so I don't see what the issue is. The last time it went above the penalty rate was around about the time the BoE bailed out N.Rock.

(It doesn't really make sense for LIBOR to go above the BoE penalty rate, for then it wouls be cheaper for commercial banks to borrow from the BoE at penalty than from each other - however in reality they use LIBOR even if it's higher due to the stigma attached from having to borrow from the BoE at penalty)

Penalty is typically 1pc aboove base rate.

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Pure speculation but I wonder if this has got anything to do with the rumors that the ECB were going to tighten up on the auctions/funding that the British banks with European op's have recently been taking advantage of, at a time when the 3 month money will be rolling over.

That would have caused an emergency meeting at the Boe.

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At the start of March it will be 6 months since NR was forced to go to the BoE for funding. Wasn't there a huge injection of funding from central banks 3 months ago, too? Is the LIBOR rate going up every 3 months? September, December, March?

Edited by Kneale

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At the start of March it will be 6 months since NR was forced to go to the BoE for funding. Wasn't there a huge injection of funding from central banks 3 months ago, too? Is the LIBOR rate going up every 3 months? September, December, March?

By the looks of it yes. Anyone remember what the peak 3 month rate for December was?

September's high was, I think, 6.96% or 1.21% above base rates then.

Edited by eek

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At the start of March it will be 6 months since NR was forced to go to the BoE for funding. Wasn't there a huge injection of funding from central banks 3 months ago, too? Is the LIBOR rate going up every 3 months? September, December, March?

Pretty much! See chart.

LIBOR.gif

post-7915-1204270494_thumb.png

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Pretty much! See chart.

LIBOR.gif

ahh the three month trend was spotted by a forum member at the start of the crunch. As far as i understand the banks are getting most of the borrowed money as 3 month loans, every three months the crunch happens again as the banks struggle to get funding.

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At the start of March it will be 6 months since NR was forced to go to the BoE for funding. Wasn't there a huge injection of funding from central banks 3 months ago, too? Is the LIBOR rate going up every 3 months? September, December, March?

Extradry Martini believes that this reflects banks rolling over 3 month loans (from memory), so that there will be problems every three months,

Peter.

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Daily figures can be viewed here,

http://www.bankofengland.co.uk/mfsd/iadb/f...SQ&Filter=N

Does this mean we are likely to see LIBOR and therefore bank rates drop once this period of rolling over is finished?

No, the banks have been reliant on additional CB funding since the credit crisis broke. If this funding is withdrawn, I think it will be corrrect to presume that they will be back to square one.

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LIBOR is still below the BoE penalty rate, so I don't see what the issue is. The last time it went above the penalty rate was around about the time the BoE bailed out N.Rock.

(It doesn't really make sense for LIBOR to go above the BoE penalty rate, for then it wouls be cheaper for commercial banks to borrow from the BoE at penalty than from each other - however in reality they use LIBOR even if it's higher due to the stigma attached from having to borrow from the BoE at penalty)

Penalty is typically 1pc aboove base rate.

The issue is that it now costs significantly more for companies to borrow relative to base rates that it once did. The penalty rate is irrelevant. Historically 3-month libor average about 15bps above base rates. If you typical corporate is now borrowing a LIBOR + 50 say, it will cost 6.2% to borrow for 3 months.

The cost of money is highly relevant when deciding on the potential profitability of new investments. Higher rates of interest reduce the incentive to invest, especially in a slowing economy, which affects profitability, tax receipts and employment.

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  • 294 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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