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Thread: Money-Market Rates More Than Double Amid Global Credit Seizure

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    Default Money-Market Rates More Than Double Amid Global Credit Seizure

    http://www.bloomberg.com/apps/news?p...Ccc&refer=home

    Sept. 16 (Bloomberg) -- The cost of borrowing in dollars overnight more than doubled as banks hoarded cash amid speculation more financial institutions will fail.

    The overnight dollar rate soared 333 basis points to 6.44 percent today, its biggest jump, according to the British Bankers' Association. Rates climbed yesterday after Lehman Brothers Holdings Inc. succumbed to mounting credit-market losses and filed for bankruptcy.

    ``The issue going forward is not Freddie, Fannie or Lehman, it's who's next,'' said Padhraic Garvey, head of investment-grade strategy in Amsterdam at ING Bank NV. ``It's all a mess out there, it's unbelievable.

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    Default Re: Money-Market Rates More Than Double Amid Global Credit Seizure

    yes, this is the infamous TED spread ... i.e. the difference between the FED's 'official' interest rate offered to super heavy hitter member banks, and the 'real world' interest rate which must be paid by non heavy hitter banks, corporations etc.

    from Wiki ...

    (snip)"The TED spread can be used as an indicator of credit risk. This is because U.S. T-bills are considered risk free while the LIBOR rate reflects the credit risk of lending to commercial banks. As the TED spread increases, the risk of default (also known as counterparty risk) is considered to be increasing, and investors will have a preference for safe investments. As the spread decreases, the risk of default is considered to be decreasing.[1]

    The name originates from the initialism of "T-Bill" and "ED"—the ticker symbol for the Eurodollar futures contract. The size of the spread is usually denominated in basis points (bps), e.g. when T-Bills trade at 5.10% and ED trades at 5.50%, the TED spread is said to trade at 40bps. The value of the TED spread fluctuates over time but is often between 10 and 50 basis points (0.1% and 0.5%). A rising TED spread often foretells a downturn in the U.S. stock market as liquidity is withdrawn. During 2007, the credit crunch, which many believe was caused by the U.S. subprime mortgage securities meltdown, ballooned the TED spread to a region of 150-200bps, and it reached a high of 250bps at the end of the year."(snip)

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