Friday September 26, 09:48 AM
UPDATE 1-Money market frozen as bailout stalls, cbanks act
LONDON, Sept 26 (Reuters) - Money markets remained paralysed on Friday, despite increased liquidity injections from central banks around the world, as U.S. political wrangling appeared to stall the passing of a $700 billion bailout plan.
Dollar borrowing rates stayed high and premia paid over U.S. government borrowing rates wide, particularly for three month money, as nervous investors awaited to see if the U.S. government plan will be passed, and if so, how it will look.
The money market stress was exacerbated by the looming quarter end is looming. Any three-month lending now will mature over the Christmas period, when markets are either closed or highly illiquid.
'There is no term lending of note between counterparties. Any term funding there is coming from the central banks,' said Meyrick Chapman, rates strategist at UBS (Virt-X: UBSN.VX - news) .
In early London trade on Friday the interbank cost of borrowing dollars for three months was indicated at the upper end of a wide range between 3.7 and 4.8 percent.
Thursday's fixing of three-month London interbank offered rates by the British Bankers Association was 3.76875 percent
compared to Wednesday's record high of around 162.
That spread had fallen late on Thursday to around 135 basis points on optimism an agreement between Congressional Republicans and Democrats would be reached, only to widen back out again on the gridlock.
Swaps spreads are widely seen as an indicator of investor risk aversion and financial market turmoil: the wider the spread, the greater the stress.
(Reporting by Jamie McGeever, editing by Mike Peacock) Keywords: MARKETS INTERBANK
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