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Categorized in | Featured Articles

LIBOR Rates Hit Record Lows

The London Interbank Offered Rate

forex22The London Interbank Offered Rate (LIBOR) affects everyone in many ways. Simply put the LIBOR is a world wide guide banks use when lending to each other. Most adjustable rate mortgages (ARMs) and credit card interest rates are based on the LIBOR. The higher the rate the higher the payments on the mortgage or credit card. The British Bankers Association meets daily to compile the rate which is then released through the Reuters news agency. Unfortunately there is no way of forecasting the LIBOR beyond a year’s time. Lenders around the world monitor the LIBOR rate daily.

Record Lows Last Week

Last Friday the interbank rate for three month euro, dollar, and pound funds hit record lows. The LIBOR dropped to its lowest since the BBA introduced the Libor fixings in 1989. BBA data showed that the three month dollar LIBOR rate fell to 0.50375%. The three month spreads of LIBOR over Overnight Interbank Swap rates also narrowed. The spread is indicative of the three month premium paid over Overnight Interbank Swap rates and is widely held as an indicator of backs willingness to lend to each other. A narrow spread is seen as an indicator of more willingness to lend while a wider spread indicates reluctance to lend.

No Full Recovery Until 2010

The narrower spreads are seen as a positive development and with banks more willing to lend to each other risk sentiment is raised. Narrower spreads are good news for credit markets and have a positive effect on currency and equity markets. While the results of the current LIBOR are positive many experts believe that it will take well into 2010 for bank to bank lending to recover from the financial and credit crisis which began with the failure of Lehman Brothers in 2008.

Quick Forex Tip: Interbank forex dealers have access to better spreads than the average investor because of the size of the transactions. Small investors who want to trade interbank fx now have access through the use of forex brokers who are able to put together large transactions. Additionally, many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. Whether you have a lot or a little money to invest, interbank forex trading is a great option because forex markets are almost recession proof.

 

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