By Patricia Lui
Nov. 7 (Bloomberg) -- Global financing costs fell, taking Asian-Pacific rates to their biggest weekly declines in a decade, as central banks across the globe slashed interest rates, including the Bank of Korea's third reduction in a month.
The rate Australia's banks charge each other for three-month loans fell 13 basis points to 4.99 percent as of 10:07 a.m. in Sydney, capping the biggest weekly drop since January 1990. Hong Kong's three-month interbank offered rate, or Hibor, fell 20 basis points to 2.24 percent for its largest weekly slide since 1998, at the 11 a.m. fixing by the Hong Kong Association of Banks.
Money rates have declined since central banks flooded the banking system with an unlimited supply of dollar funding and governments offered bailouts and guarantees to financial institutions. Policy makers in the Asia-Pacific region's five biggest economies, along with Europe, the U.K. and the U.S., all cut interest rates in the past two weeks.
``Conditions in the money markets continue to alleviate and the liquidity injections from central banks are continuing to pay off,'' said Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore. ``We will probably move from focusing on liquidity problems to the bigger monster of the global economy.''
The three-month interbank rate for U.S. dollar loans in Singapore, or Sibor, fell 8.7 basis points to 2.33 percent.
South Korean central bank Governor Lee Seong Tae lowered the seven-day repurchase rate by a quarter of a percentage point to 4 percent in Seoul today.
Cutting Rates
Lee has reduced the rate by 1.25 percentage points since Oct. 9, the most aggressive round of cuts since the bank started setting a policy rate in 1998, striving to limit economic damage from the global credit crisis that has sent Korea's won down 32 percent this year and the stock index plunging 45 percent.
The European Central Bank cut its main refinancing rate by a half-percentage point yesterday to 3.25 percent, while the Bank of England lowered its target 1.5 percentage points to 3 percent, the lowest since 1955, as policy makers tried to limit damage caused by the worst banking crisis in almost a century.
The U.K.'s biggest cut in 16 years The London interbank offered rate, or Libor, for three-month loans in U.S. dollars dropped 12 basis points to 2.39 percent yesterday, the lowest level since November 2004. A basis point is 0.01 percentage point.
``Over the course of the past three weeks we have seen significant improvements in Libor,'' Michael Cloherty, an interest-rate strategist in New York at Bank of America Corp., wrote in a report dated yesterday. Still, swap spreads haven't narrowed as rapidly as lending rates, which shows ``the market expects a longer period of more gradual improvement than previously,'' he said.
Three-month dollar Libor, which has fallen for the past 19 days, is still 139 basis points more than the Fed's target rate for overnight bank loans, compared with an average of 22 basis points in the five years before the current credit crisis began in August 2007.
Libor Declines
Libor, the benchmark for $360 trillion of financial products worldwide, is set by a panel of banks in a daily survey by the British Bankers' Association before noon in London.
The cost of protecting Japanese and Australian corporate bonds from default increased, according to traders of credit- default swaps.
The difference between Libor and the overnight indexed swap rate, a measure former Fed Chairman Alan Greenspan uses to gauge the state of money markets, narrowed 12 basis points to 183 basis points yesterday. That compares with 87 basis points on the last trading day before Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15 and an average 11 basis points in the five years before the crisis started.
The difference between the yield on Australian three-month bank bills and the overnight indexed swap rate, a similar measure of funding availability, dropped to 50 basis points today, the lowest since Lehman filed for bankruptcy.
Deposits Drop
Australian banks reduced deposits held at the Reserve Bank of Australia to A$5.88 billion ($3.9 billion) yesterday, the lowest since Sept. 16, the RBA said today on its Web site. The deposits reached a record A$11.2 billion on Oct. 20 as Lehman's collapse led to a seizure in interbank lending.
Overnight deposits held by European institutions with the ECB fell from a record and borrowing slid to a six-week low at an auction. Financial institutions lodged 274.5 billion euros ($354 billion) in the central bank's deposit facility yesterday at 3.25 percent, down from 295.9 billion euros the day before. They also borrowed 3.5 billion euros from the ECB at the emergency overnight marginal rate of 4.25 percent, the lowest amount since Sept. 25.
The Markit iTraxx Japan index rose 12 basis points to trade at 242 as of 9:24 a.m. in Tokyo, according to Credit Suisse Group prices. The Markit iTraxx Australia index was quoted 17 basis points higher at 265, ABN Amro Holding NV data show. The indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality.
Credit-default swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. A basis point is worth $1,000 on a swap that protects $10 million of debt from default.
To contact the reporters on this story: Patricia Lui in Singapore at plui4@bloomberg.net
Posts
No comments:
Post a Comment