Strain persists on interbank lending

Instability in the interbank lending markets continued today, despite the approval of the revised $700 billion bailout legislation by the US Senate.

The Ted spread, which tracks the difference between three-month Libor and US Treasury bills, reached a near record high of 3.52% by 1400 GMT today, up from 3.35% yesterday.

Three-month US dollar Libor continued to climb, reaching 4.207% today from 4.15% yesterday. Meanwhile, the cost of borrowing euros for three months reached a yearly high, increasing to 5.317% from 5.285%. However, three-month sterling Libor rates fell from 6.307% to 6.277%.

Overnight Libor rates for the dollar and euro declined today, with the dollar rate dropping to 2.681% from 3.794% yesterday, and the euro rate to 4.161% from 4.269%. Conversely, overnight sterling borrowing costs increased slightly, from 4.9625% to 5%.

European financial stocks rose this morning after the US Senate voted 74-25 in favour of an amended version of the $700 billion rescue plan, which will go before Congress within the next few days. Several additions have been made to the bill, including temporarily raising the limit on federal deposit insurance to $250,000 from $100,000, as well as a proposal that would see $150 billion in individual and business tax cuts over the next decade.

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