Good morning! I don’t see a lot of people talking about it. But select interest rates that aren’t directly controlled by the Federal Reserve continue to rise, and rise sharply, regardless of the daily shift in hike/no hike comments from various Fed officials. These two charts show 3-month LIBOR and the LIBOR-OIS spread. You can see the steady climb over the last several months, and how we’re now at the highest level for LIBOR since the tail end of the 2009 credit crisis, and the highest level for the LIBOR-OIS spread since the European debt debacle …
Some analysts continue to blame this on the new money market fund regulations. Others think something more troubling is afoot (such as increased default/credit fears). Given the persistence and magnitude of the move, though, I’m inclined to lean toward the second camp. Regardless of what is CAUSING the move, the EFFECT is to raise corporate borrowing/financing costs. This Bloomberg story explains how floating-rate borrowers (including many junk-rated companies) are going to get squeezed as LIBOR keeps climbing. So keep an eye on this trend …
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This looks to me to be a nuclear missile launched from under the sea that nobody else has noticed yet. Target: the multi-quadrillion derivatives market once all the mousetraps in the room start triggering each other.