Some fully paid up subscribers have inquired about the huge spike in overnight Libor today. It has jumped by 111 basis points to 3.61 percent from 2.50 percent.
I did converse with a money market trader who ascribes the jump to quarter end and expects a return to normality in a few days.
He did add that the money market sector is in a defensive and gloomy mood. Borrowers are staying short as the fear of Fed rate hikes has caused many to refrain from term funding.
He also notes that while the market has not reached the depths of despair reached in February and March, concerns are mounting. He mentioned in particular worries about the mortgage insurers as well as the regional banks. He said that there are many investors who expect that many financial companies will be forced to eliminate their dividends before the crisis finally resolves itself.
Finally, he noted tiering in the Commercial Paper market. The “haves” can borrow often at favorable funding levels while for many others (certain single As) liquidity is not only random but dear.