Thursday May 21, 10:59 PM
MONEY MARKETS-More progress despite new worries
By Burton Frierson and George Matlock
NEW YORK/LONDON, May 21 (Reuters) - The cost for banks to
borrow dollars around the globe extended its run of record lows
on Thursday and other signs of market stress appeared to remain
on the path toward normalization.
These signs of improvement came despite new worries over
the ability of the U.S. government to finance its burgeoning
debt.
The concerns came by way of the UK after ratings agency
Standard and Poor's issued a warning that Britain's outlook was
'negative' and no longer 'stable' due to concerns over its
rising load of government debt.
Investors, noticing similarities between the United States
and UK who are both are suffering the effects of the same
credit crisis, dumped the dollar and U.S. government debt.
However, the storm appeared to skirt the money market, at
least for now, with three-month dollar and sterling Libor rates
both hitting new lows..
There were other signs of stabilization emanating from the
United States, with the U.S. Federal Reserve's balance sheet
shrinking a bit in the latest week, suggesting banks and
financial companies relied less on the central bank as the
lender of last resort.
The Fed's balance sheet -- a broad gauge of its lending to
the financial system -- slipped but was still enormous at
$2.165 trillion on Wednesday, versus $2.179 trillion on May
13.
'We're by no means out of the woods yet. Obviously the
Fed's balance sheet is still astronomically huge but it is not
growing. It has come down off its highs,' said Kim Rupert,
managing director of global fixed income analysis at Action
Economics LLC in San Francisco.
'It is consistent with some of the other data that we are
seeing some stability. There is not an increased need for
credit but what is already out there they are still using.'
Despite the fall in dollar and sterling rates, euro rates
rose. This, however, is being seen as a sign of banks scaling
back their reliance on the European Central Bank.
(Reporting by Burton Frierson; Editing by Diane Craft)
Keywords: MARKETS MONEY
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