The three-month London Interbank Offered Rate (Libor) for dollars, a major global lending benchmark, surpassed 5 percent for the first time in more than 15 years on Monday, amid speculations about an increased interest hike by the US Federal Reserve.
The benchmark rate for lending between banks rose 2.4 basis points to 5.008 percent, the highest since December 2007, Bloomberg reported.
The spread of Libor over overnight index swaps – a barometer of funding pressure – widened to 3.2 basis points (bps) from 1.7 bps the prior session.
Much of the recent surge in the global reference rate, which is set to be phased out on June 30, has been driven by expectations of Fed policy tightening.
Traders not only expect a higher terminal rate, but the Fed to stay at that level for a longer period than previously expected.
“The rise in Libor only makes sense as front-end rates continue to move higher on stronger data and expectations for more Fed rate hikes,” the report said, quoting TD Securities strategist Gennadiy Goldberg. “Libor-OIS remains quite tight, hinting at few funding pressures,” Goldberg said.
While Libor is moving in line with many other short-term rates, there are other elements that feed into the daily setting, including the backdrop for commercial paper transactions and broader credit conditions.
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