Interbank lending remains volatile as bailout is revised

The interbank lending markets remained unstable today, after the US Senate agreed to vote on an amended version of the rescue package.

The Ted spread, which tracks the difference between three-month Libor and US Treasury bills, reached 3.34% by 1400 GMT today, down from an all-time high of 3.536% on September 29 but up from 3.15% yesterday.

Three-month US dollar Libor climbed still further today, reaching 4.15% from 4.053% yesterday. Three-month euro and sterling borrowing costs reached yearly highs, increasing to 5.285 % and 6.307% respectively from 5.274% and 6.3% on September 30.

The overnight US dollar Libor rate dropped to 3.794% from a record 6.875% yesterday. Overnight sterling borrowing costs also dropped, to 4.9625 % from 6.780%, a trend echoed by the overnight euro Libor rate, which fell from 4.449% to 4.269% over the same period.

The US Congress voted against the Treasury department’s economic rescue legislation on Monday, causing equity markets to slump. However, the Senate agreed yesterday to vote on a revised version of the bill tonight. Several additions have been made - including temporarily raising the limit on federal deposit insurance to $250,000 from $100,000.

See also: Interbank lending suffers as $700 billion rescue vehicle breaks down