Gold Silver Reports — Libor Surges Ahead of US Money Market Reform — If the London Interbank Borrowing Rate (Libor) was a musical artist, or an actor, or a sports team, we’d be calling 2016 its comeback year.
Not since the financial crisis of 2008 has Libor, to which almost $7 trillion of debt including mortgages, student loans and corporate borrowings, is pegged -experienced such a surge.The three-month US dollar Libor rate has jumped from 0.61% at the start of the year to 0.87% currently -a 42% rise -ahead of money market reform that’s due to come into effect on October 14.
The new rules require prime money market funds -an important source of short-term funding for banks and companies -to build up liquidity buffers, install redemption gates, and use `floating’ net asset values instead of a fixed $1-per-share price. While the changes are aimed at reinforcing a $2.7-trillion industry that exacerbat ed the financial crisis, they are causing turmoil they are causing turmoil in money markets as big banks adjust to the new reality of a shrinking pool of available funding. Some $1 trillion worth of assets have shifted from prime money market funds into government money market funds that invest in safer assets such as short-term US debt, according to estimates. — Neal Bhai Reports