Thursday July 2, 06:05 PM
MONEY MARKETS-Rates at new lows but the keep medication coming
By Burton Frierson
NEW YORK, July 2 (Reuters) - Dollar borrowing costs between banks fell again on Thursday, hitting the latest in a series of all-time lows, but dismal U.S. jobs data raised doubts over when the easy money would lift the economy.
The U.S. economy lost nearly half a million jobs last month, far more than the previous month or analysts' expectations, calling into question expectations for stabilization anytime soon. For details, see
This took the shine off news that closely-watched London interbank offered rates for bank-to-bank lending fell to another record low. It also reminded analysts this had been achieved mainly by massive and continued Fed support.
'I do think overall it's a positive to have Libor coming down from the abnormally-distressed levels that we've seen over the last year, but I'm a little cautious because it is also a medicated market,' said Jeff Given, a portfolio manager for fixed income with John Hancock Funds in Boston.
'Borrowing costs coming down, corporations being able to borrow at cheaper rates is helping at the margins but what we really need to get the economy going is going to be some consumer spending,' he said.
Three-month dollar Libor fell to 0.5775 percent , a record low, from 0.5875 percent.
Driving the decline has been the Fed's zero-rate monetary policy and its myriad programs and facilities designed to pump money into a financial system that suffered its worst crisis since the Great Depression of the 1930s.
A key gauge of risk aversion also reflected the continued normalization of financial conditions. The TED spread remained pegged at levels that prevailed just before the start of the financial crisis nearly two years ago.
But the question remains: When will all of this help the economy resume growth, which is the ultimate precondition to getting the financial sector out of the crisis brought on by the bursting of this decade's credit bubble?
The current rate of job losses will not bring that any closer, analysts say, since it will weigh on economic activity in an economy where growth was driven by consumer spending in recent years.
'It is definitely a weak number all around,' Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York, said about the job-loss figure.
'The combination of lower hours, unchanged wages and lower employment all means lower income, which is going to weigh on consumer spending going forward,' he added.
((Reporting by Burton Frierson; editing by Gary Crosse)) Keywords: MARKETS MONEY
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