As LIBOR moves upwards, Central Banks remain so predictable

The Federal Reserve under new chairman Jerome Powell approved a 0.25% hike that puts the new benchmark funds rate at a target of 1.5% to 1.75%.

There was once a time when no one knew what to expect when Central Bankers met. Times have entirely changed, they are so predictable.

Meanwhile, the three-month LIBOR (US dollar London interbank offered rate), one of the key benchmarks for setting borrowing rates worldwide has been on the rise recently reaching 2.25%. That number is the highest since 2008.

What is causing a rise in LIBOR? Is it because private borrowing is massively rising? Deutsche Bank today said that internal funding costs are significantly higher this quarter compared to a year ago and its shares fell to the lowest level since November 2016. Will banks start raising more capital soon?

LIBOR overnight indexed swap (OIS) rate, a key gauge of risk in interbank lending hit a nine-year high too. Given the massive divergence of interest rate strategies between Europe (zero or negative interest rates) and the US (rising interest rates) and a falling dollar is it that money supply is shrinking? That could be possible. If that is indeed the case then the dollar will weaken even further. And the US will be an even bigger outlier for bond yields.

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