Thought I’d just post a quick update on Libor curves. When I get around to it, I’m going to add Yen Libor as well. Don’t hold your breath waiting because I’m going to get ready to hit the road soon. So I’ll be traveling and probably won’t post as much. And when I do post, it’ll be short and sweet or short and bitter. But either way it will be short in all likelihood.
Any rate, let’s start with a Libor curve comparison. One has seen some activity. The other? Suspended animation.
The dollar Libor curve movement has been quite dramatic. The 3 and 6mth movements appear to be more dramatic looking at the changes in rates on a relative basis.
Next, is a look at the spread between the two:
Overnight dollar Libor is still higher than euro Libor (hence the -2bp spread), but the steepness in spreads is dropping – and the whole spread curve is flattening. So what does that mean? Simple. Dollars are being taken down at longer maturities. Banks and counterparties are trying to lock up longer term dollar funding at this stage of the game. Which means, in my opinion, there’s less – not more – confidence in the Euro. Also, it has been interesting to see the curve has been upward sloping to 6mths, but the 1yr rate is inside the 6mth. It’s probably a function of 1yr dollar Libor funding being more liquid and better bid than the 6mth, but still, an interesting observation to me.
That’s all I have for now. But really, there’s not much else to say. To me, the only question is how much this will grow in order to handle the demands for dollar funding:
Only time will tell, but rest assured the more the spread curve moves to zero, the funding pressures will be getting more acute. And if that happens, borrowings of dollars will be more than the meager amounts we’ve seen so far.