Tags: Investors | Libor | Direction | Markets

Investors Look to Wonk Rate for Market's Direction

By    |   Wednesday, 16 Jun 2010 01:33 PM

With financial markets becoming more volatile by the day, investors are searching far and wide for indicators to determine their direction.

“What you are really looking for is a canary in a coal mine,” Douglas Roberts, chief investment strategist for the Channel Capital Research Institute, told The New York Times.

One statistic experts scrutinize is Libor (the London interbank offered rate). Set daily, that’s the rate banks charge each other to borrow dollars in the London market.

Three-month Libor recently stood at 0.54 percent. It’s been climbing since the onset of European debt crisis and has doubled since the beginning of the year.

That indicates banks are reluctant to lend to each other, just as they were during the credit crisis of 2008, when Libor jumped to 4.82 percent.

That reluctance is obviously a bad sign for financial markets.

Some experts focus on the Libor-OIS (Overnight Indexed Swaps) spread, which measures the difference between Libor and the rate banks pay to borrow money in the swaps market.

That spread has been rising too, another negative sign.

“Right now, we are paying a lot of attention to indicators of the health of the interbank market in Europe,” Pimco CEO Mohamed El-Erian told The Times.

Many are concerned about the rise in Libor.

“The air of counterparty risk suspicion is not ending,” Marc Ostwald, a fixed-income strategist at Monument Securities, told Bloomberg.

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With financial markets becoming more volatile by the day, investors are searching far and wide for indicators to determine their direction. What you are really looking for is a canary in a coal mine, Douglas Roberts, chief investment strategist for the Channel Capital...
Investors,Libor,Direction,Markets
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2010-33-16
Wednesday, 16 Jun 2010 01:33 PM
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