Overnight Interest Rate Doubles as Banks Hoard Cash on Failure Speculation

[marmar]

from Bloomberg:



Money-Market Rates More Than Double Amid Global Credit Seizure

By Gavin Finch and Kim-Mai Cutler

Sept. 16 (Bloomberg) -- The cost of borrowing in dollars overnight more than doubled as banks hoarded cash amid speculation more financial institutions will fail.

The overnight dollar rate soared 333 basis points to 6.44 percent today, its biggest jump, according to the British Bankers' Association. Rates climbed yesterday after Lehman Brothers Holdings Inc. succumbed to mounting credit-market losses and filed for bankruptcy.

``The issue going forward is not Freddie, Fannie or Lehman, it's who's next,'' said Padhraic Garvey, head of investment-grade strategy in Amsterdam at ING Bank NV. ``It's all a mess out there, it's unbelievable. It's very tough.''

The difference between the London interbank offered rate for three-month dollar loans and the overnight indexed swap rate, the Libor-OIS spread that measures the availability of funds in the market, widened 11 basis points to 116 basis points, the most since at least December 2001. That compares with an average of 8 basis points in the 12 months to July 31, 2007, before the credit squeeze started.

American International Group Inc.'s debt ratings were downgraded by Standard & Poor's and Moody's Investors Service, threatening the company's efforts to raise emergency funds. The biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital, according to two people familiar with the situation.

The one-week euro rate jumped 7 basis points to 4.49 percent, the EBF said today, the highest level since Dec. 24. It was the biggest increase since July 3. ......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=azlzSeGqHCcc&refer=home

[aquart]

1. Well, I guess it wouldn't wait till January.