Monday May 18, 02:12 PM
MONEY MARKETS-Dlr, euro, sterling funding rates at record low
By George Matlock
LONDON, May 18 (Reuters) - The cost of three-month dollar
funding in Europe extended its near-2 week falling streak on
Monday, alongside record lows marked by euro and sterling funds,
but some market observers said the pace may slow from here.
Three-month dollar Libor slipped around 4 basis
points to a record low 0.78500 percent at the London fixings on
Monday conducted by the British Bankers' Association.
Three-month Euribor also hit a fresh record low of 1.244
percent.
'There's been a big move on the dollar,' said Peter
Chatwell, a market analyst at Calyon in London. 'Money is
flowing more freely and the market, although not normal, is
operating more actively. There appears to be some competition
between the banks, with tighter spreads among them,' he added.
But some analysts say rates appear to be nearing a nadir and
a significant decline from these levels would need major
pronouncements from policymakers.
'The Libor coming down is enticing people to return to
markets but I don't see it going down a lot more from these
levels,' said Suresh Ramanathan, a strategist with CIMB Bank.
'We need to see more really dovish comments from the central
banks for LIBOR to come down a lot more and I don't see that
happening,' he said.
European Central Bank President Jean-Claude Trichet said on
Friday that ECB measures to stimulate the euro zone economy can
be removed quickly when the economy improves.
Laurence Mutkin, an executive director at Morgan Stanley (NYSE: MS - news) in
London, said that Libor-OIS spreads -- which express a greater
willingness to lend between banks if they narrow -- might not
return to pre-crisis levels.
'Arguably, Libor-OIS spreads should not be expected to
return to their pre-July 2007 levels of around 7-12 basis
points, as the period before the credit crunch started is now
seen as a liquidity bubble during which risk aversion,
counterparty credit concerns and the cost of balance sheet were
all anomalously low,' said Mutkin in the note issued on Friday.
But there could still be more significant moves lower by
Libor rates in the next few weeks, said Calyon's Chatwell.
'Maybe it's unreasonable to expect another 4 bps tomorrow,
but as long as nothing disastrous happens in the banking sector,
we should be looking for further significant falls,' he said.
'One basis point (the rate of decline at 3-month Libor) is
the minimum we should expect. There is a lot of momentum in
these falls in Libors now, and I see no reason why the credit
spread can't continue to compress, cutting these rates further.'
(Reporting by George Matlock; editing by David Stamp)
Keywords: MONEY MARKETS
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