(5 March 2020 – United Kingdom) The London Interbank Offered Rate has registered its largest single day decline in over ten years, directly benefitting corporate treasurer borrowers but where do lenders stand?
The world’s most important short term interest rate registered its biggest one-day fall in more than a decade as credit markets digested signals the US Fed plans to cut borrowing costs even deeper in the wake of the coronavirus. Three-month London interbank offered rate (Libor) sank 31.4 basis points to 1.00063 percent – the biggest one-day slide since October 2008 at the height of the global financial crisis (GFC).
Both companies and investors must now navigate the economic and financial effects of the coronavirus that heighten credit risk while sucking liquidity out of the bond markets.
“The result is deteriorating credit quality, at a time of poor technical conditions for several segments of the US corporate bond market – which, at some US$10 trillion, is five times as large as it was in 2001. The longer it takes to contain these spillovers, the larger the credit downgrades, the higher the threats of default – and the greater the likelihood of markets contaminating the economy” Allianz Chief Economic Adviser, Mohamed El-Erian.