Credit thaw quickens; key short-term rates at four-year lows

The thaw in the credit markets is accelerating today, which is underpinning the stock market’s surge. The Dow Jones industrial average was up 288 points, or 3.1%, to 9,608.71 at about 10:40 a.m. PST.

Bloomberg News notes:

Interest rates on U.S. commercial paper fell to the lowest in four years as Federal Reserve efforts to unlock short-term credit markets, including buying the debt directly from companies, showed signs of working.

Interest rates on the highest-ranked 30-day commercial paper fell 0.27 percentage point to 1.74%, the lowest since Sept. 22, 2004, according to yields offered by companies and compiled by Bloomberg.

Commercial paper outstanding rose by $100.5 billion, or 6.9%, to a seasonally adjusted $1.55 trillion for the week ended Oct. 29, according to the Fed. The gain reversed a 20% decline during the previous six weeks.

The Fed began buying commercial paper -- short-term corporate IOUs -- directly from issuing companies last week, another element of its broad-based efforts to get money moving again in the economy.

One benchmark of banks’ cost of borrowing from each other also fell to a four-year low today. The London interbank offered rate, or Libor, for one-month loans in dollars slid to 2.18%, down from 2.36% on Monday.

It was the 17th straight decline, and it put the rate at its lowest since November 2004. During the height of the global credit market panic in mid-October, the one-month Libor rate peaked at 4.59%.

Central banks are continuing to hack away at the cost of money. Overnight, Australia’s central bank slashed its key short-term rate to 5.25% from 6%, following last week’s cut in the U.S. Fed’s rate to 1% from 1.5%.

The European Central Bank and the Bank of England are expected to lower their benchmark rates at meetings on Thursday.

Comments

[Joe Six Pack]

Thaw? It feels like Siberia where I'm standing. When are the mortgage rates going to come down?

[Kilroi1]

When are mortgage rates going to come down? 30 Year fixed rates were at about 6% today which historically over the last ten years is fairly low. SUre it's not the 5% that a few lucky people hit during that time but 6% is pretty cheap mortgage money. The real problem is the over-tightened guidelines and the banks fear of actually lending money. Once that "thaws" the housing market should start moving again.