Libor On The Rise

The 3-month London Interbank Offered Rate reached 2.81 percent Monday, the highest it has been since mid-June (see Financial Times article). The Libor is elevated compared to the Federal Funds rate, currently at 2 percent. The difference of 81 bps between Libor and the Fed Funds rate compares to an average spread of just 12 bps that occurred before the beginning of the credit crisis last year, indicating that there is still a lot of stress in the financial system, and that banks are still restructuring. Given that the market has been lowing its expectation of a Fed increase, the rising Libor may be an indication of more problems ahead in the financial system.