Thursday, May 6, 2010

The Debts of the Spenders: LIBOR OIS Spread Widens to 2008 Levels

Markets are pressuring Trichet to pull a Bernanke and have the ECB buy European government bonds (Bernanke was responsible for structuring the agency debt MBS program under the Federal Reserve).

May 6 (Bloomberg) -- Money markets show banks may be increasingly reluctant to lend to each other on concern that quality of collateral backing short-term loans is diminishing as government finances in Europe worsen.

The spread between the three-month dollar London interbank offered rate, or Libor, and the overnight indexed swap rate rose to the most in more than five months, reaching 13.4 basis points today. The so-called Libor-OIS spread has increased from 6 basis points on March 15.
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