Credit Concerns In U.S. Growing As LIBOR OIS Surges to 2009 High…(Credit Snaps…Trucking Stops!)
By: GoldCore
GoldSeek.com
Wednesday, 21 March 2018
Key Metric LIBOR OIS Signals Major Credit Concerns
– Widening of the spread between LIBOR OIS (overnight index swap) rate raises concerns
– Spread jumped to 9 year widest spread, rising to 54.6bps, most since May 2009.
– Libor recently moved to over 2% for first time since 2008
– Wider spread usually associated with heightened credit concerns
Major credit concerns are back as one of the key U.S. metrics, the LIBOR-OIS spread has been climbing sharply and is now higher than levels seen during the height of the eurozone sovereign debt crisis of late 2011 and early 2012. Indeed, it has risen to levels last seen at the height of the blogal financial crisis in 2009.
The spread has doubled since January and in the last month it has widened by 15 basis points, putting it above 0.50%.
Usually this kind of divergence between the two rates is not seen without some kind of credit issue. Only now are investors beginning to ask how much wider it can go and what it says about financial markets.
LIBOR rising
The London Interbank Offered Rate (LIBOR) is the key benchmark interest rate for short-term loans around the world.It is the point of reference for the majority of leveraged loans, interest-rate swaps and, of course, some mortgages.
It is this rate which is primarily responsible for the widening of the spread.
LIBOR has been on the up since February 7th, reaching 2.25%, its highest level since 2008. Markets are concerned that this isn’t the highest we will see it go, as there may be more room for it to run.
LIBOR-OIS spread is a warning sign
At the moment much of the mainstream media and banks are passing of the increased rate as something caused by technicals. The most frequently cited explanation is the increase in T-bill issuance since the debt-ceiling was raised but additionally the recent US tax overhaul and Fed tightening is also being blamed.
However, these are the very obvious and somewhat easy explanations. As Zerohedge pointed out yesterday, there are six possible explanations for the increase in the spread, the latter three arguably the most realistic and concerning.
The Rest…HERE
