Money-Market Rates Fall as Cash Injections Ease Credit Squeeze

The cost of borrowing in Europe
declined as cash injections by the region's central banks
showed signs of easing the paralysis among lenders.
The euro interbank offered rate, or Euribor, for three-
month loans fell 5 basis points to 4.86 percent today, the
lowest level since May 29, according to the European Banking
Federation. The comparable dollar rate may drop 4 basis points
to 3.47 percent today, according to Barry Moran, a Dublin-based
money-market trader at Bank of Ireland, the country's second-
biggest bank. Asian rates rose for a second day.
``Libor fixings continue to show slow improvements,'' said
Laurence Mutkin, the London-based head of European fixed-income
strategy for Morgan Stanley. ``There may be renewed improvement
in term-financing markets in the coming weeks.''
Credit markets froze after the collapse of Lehman Brothers
Holdings Inc. on Sept. 15, prompting governments and central
banks worldwide to pledge trillions of dollars to bail out banks
and resuscitate lending. The Bank of England today offered
financial institutions $10 billion of emergency overnight cash,
after allotting $3 billion yesterday.
Hong Kong's three-month interbank lending rate, or Hibor,
increased 10 basis points to 3.84 percent today, the highest
since Oct. 17. Singapore's comparable rate for U.S. dollar loans
fell 4 basis points to 3.48 percent, its 10th straight decline
since reaching 4.8 percent on Oct. 13, the highest this year.
While money-market rates have declined, the three-month
London interbank offered rate, or Libor, for dollars remains 201
basis points above the Federal Reserve's target rate for
overnight loans of 1.5 percent and up from 81 basis points about
three months ago. At the start of the year, the spread was 43
basis points.

ECB Deposits

In a further sign that some banks remain wary of lending to
each other, financial institutions lodged 213.1 billion euros
($266 billion) in the ECB's overnight deposit facility
yesterday, up from 202.6 billion euros the previous day. The
daily average in the first eight months of the year was 427
million euros.
The Libor-OIS spread, a measure of cash scarcity, was
unchanged at 263 basis points today, down from 345 basis points
two weeks ago. It was at 87 points before Lehman filed for
bankruptcy protection.
The difference between what banks and the U.S. Treasury pay
to borrow for three months, the so-called TED spread, was at 267
basis points, compared with 436 basis points two weeks ago.
Libor, the benchmark for $360 trillion of financial
products worldwide, is set by a panel of banks in a daily survey
by the British Bankers' Association by noon in London. Members
provide estimates on how much it would cost to borrow in 10
currencies for terms ranging from one day to a year.