Fox Business on LIBOR/OIS
Fox Business writes "One Market Gauge Is Signaling Fed Should Continue to Tighten Policy," which says, "A key measure that tracks stress in U.S. money markets tumbled to near its lowest level in seven years -- a sign of loose financial conditions that could prompt the Federal Reserve to maintain its pace of tightening monetary policy. The three-month dollar Libor-OIS spread -- the difference between the rate at which banks lend to each other and the market's expectations of central bank rates -- fell below 0.1 percentage point on Monday. It was 0.0998 percentage point, the lowest since August 2015, according to Steven Zeng, interest rate strategist at Deutsche Bank. The spread's lowest level in recent years was in March 2010, when it hit 0.06 percentage point." The piece adds, "As markets fret over whether the Fed will raise short-term borrowing rates too quickly, potentially constraining growth in the economy, the narrowing Libor-OIS spread is one indication that the U.S. central bank has the latitude to stay on its course of raising interest rates. The Fed lifted rates in December and March and is expected to act again at its June 13-14 meeting. Tracking the spread helps investors and policy makers monitor the health of money markets. A higher reading signals growing stress, while a lower one indicates easy funding conditions. The gauge soared to a record in October 2008 as banks lost trust in each other and money markets seized up."
