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Rising Interest Rates?  It's All Relative

Concerns about the debt crisis in Europe has helped push London Interbank Offer Rates (LIBOR) to new highs. The benchmark rate that represents the interest rate at which British banks borrow from one another is up 115% year-to-date. While the rise may seem high, it is far from levels it has seen in the past.

LIBOR rates are widely used as the reference rate for many financial instruments including futures, forwards, swaps, and many loans. As of yesterday's close, the 3-month LIBOR rate was yielding 0.53781%. By comparison, the US 3-month T-Bill was 0.162%. The difference in yields between the 3-month LIBOR and T-Bill is called the TED Spread and a rise in the spread is seen as an indicator of a future downturn in the US stock market.

The stats and chart below show that these rates are still relatively miniscule when compared to historical levels and the peak at the time of Lehman Brothers collapse.

  • LIBOR 3-MOS (0.53781%)
    • The 3-month libor rate is at its highest level since July 6, 2009
    • Up 115% year-to-date (28.7 bps)
    • Down 81% since September 15, 2008, when Lehman Brothers went bankrupt
    • Going back to January 1986
      • Hit an intraday low of 0.24875 on February 4, 2010
      • Hit an intraday high of 10.625 on March 21, 1989
  • TED Spread (38.081 bps)
    • The TED Spread is at its highest level since July 6, 2009
    • Up 82% year-to-date (17.7 bps)
    • Down 81% since September 15, 2008, when Lehman Brothers went bankrupt