Interbank lending rates continue to fall

Despite continued market unrest, healthier interbank lending rates over the past week indicate financial institutions are increasingly confident in lending to one another, while the perceived level of counterparty risk, as measured by the Ted spread, has fallen.

Overnight euro borrowing costs experienced the greatest movement last week, falling from 2.88% on Friday, December 5, to 2.24% today. On December 10 the European Central Bank cut interest rates for the eurozone by 0.75% to 2%, which led to a fall of 0.61 basis points in the cost of euro lending to 2.33% from 2.94% the previous day.

Three-month euro Libor hit 3.25% today after falling 0.28bp in a