MONEY MARKETS:MONEY-MARKET rates climbed worldwide as banks hoarded cash on speculation the seizure in credit markets is deepening and may prompt more financial institutions to collapse.
``The situation remains very tight and we probably need more action from central banks, said Cyril Beuzit, head of interest-rate strategy in London at BNP Paribas SA.
``Theres a strong will from governments to get on top of the situation, but for the moment it hasnt worked. Were still left in a risk- averse environment.
Interbank rates have jumped as banks store cash to meet anticipated funding needs after governments in Europe and the U.S. acted to prevent the collapse of six financial institutions in the past two weeks.
``Money-market conditions will continue to be very tight and this will not improve in the short term, said Dwyfor Evans, a foreign-exchange strategist at State Street Global Markets in Hong Kong. ``Theres an absence of trust.
The London interbank offered rate, or Libor, that banks charge each other for overnight dollar loans rose 37 basis points to 2.37 percent today, the British Bankers Association said.
The three-month rate stayed near the highest level since January. Asian rates increased and the Libor-OIS spread, a gauge of cash scarcity among banks, held near a record.
The Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, rose to 298 basis points today, before retreating to 291 basis points. It was at 129 basis points two weeks ago and 81 basis points a month ago.
The Federal Reserve said it will double its auctions of cash to banks to as much as $900 billion and is considering further steps, the central bank said in a statement.
The Fed will increase its auctions under the 28-day and 84-day Term Auction Facility (TAF) operations to $150 billion each. The two forward TAF auctions in November will be increased to $150 billion each.
The central bank will also begin paying interest on bank reserves.
Ted Spread Yields on overnight U.S. commercial paper jumped 0.94 percentage point to 3.68 percent. Thats the highest since Sept. 30, the day after the U.S. House of Representatives rejected an earlier version of the bank-rescue plan.
Companies sell commercial paper, which matures in nine months or less, to help pay for day-to-day expenses such as payroll and rent.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 393 basis points, before falling back to 390 after the Fed TAF statement. Bloomberg
