Pressure on the interbank lending markets intensified today, after Congress rejected the US government’s bailout plan.
The Ted spread, which tracks the difference between three-month Libor and US Treasury bills, reached an all-time high of 3.536% yesterday, though it decreased to 3.34% by 11am New York time today.
In a stark illustration of the problems facing the market, the overnight US dollar Libor rate skyrocketed to a record 6.875% at its fixing this morning, from 2.569% yesterday. The overnight sterling Libor rate also increased, reaching 6.780% from 5.262%, a trend echoed by overnight euro borrowing costs, which rose to 4.449% from 3.712% over the same period.
Three-month US dollar Libor climbed to 4.053% today, up from 3.882% yesterday. The cost of borrowing both the euro and the pound for three months reached monthly highs, climbing to 5.274% and 6.3% respectively from 5.222% and 6.261% on September 29.
The US Congress voted against the Treasury department’s $700 billion economic rescue legislation yesterday, causing equity markets to slump. Following the news, the Dow Jones Industrial Average ended the day down 778 points - the largest one-day drop in its 112-year history.
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