Fed’s new plans fail to depress dollar spreads

SINGAPORE: A steady drift higher in dollar lending rates in Asia revealed that the US government’s new plans to support consumers and the mortgage securities market had done little to soothe money markets. Rather, the near-zero yields on short term US Treasuries confirmed counter-party risks were far from easing, while wide spreads indicated bank-to-bank lending was still constrained. Three-month dollar funding costs, SIBOR, climbed to 2.2050 on Wednesday from the previous day’s 2.19333, continuing a steady rise from 2.15143 percent on Monday and in line with the upward blip in Libor. The spread between 3-month dollar Libor and market expectations of official interest rates, measured by overnight indexed swaps, widened to 176 basis points, 15 basis points above lows hit in mid-November. The US TED spread, the spread between 3-month treasury bills and inter-bank rates, was nearly unchanged at 208 basis points, having come off 163 this week. Most Asian interbank spreads stayed wide. Korean 3-month bill yields were about 134 basis points below the 3-month certificate of deposit rate at 5.46 percent, just a shade lower than the widest spread in three years. Top-rated Indian companies were raising 3-month funds at rates above 9 percent, 150 basis points or more above the central bank’s lending rate. One-month overnight indexed swaps were meanwhile showing expectations of further monetary easing, at rates of 6-6.6 percent for one-month. In Indonesia, interbank rates eased to 13.06 percent for 6-month funds, from 13.18 on Tuesday. But though the currency recovered from last week’s 10-year lows, dollar forwards remained elevated. Implied rupiah rates, the cost of rupiah obtained by swapping dollars, eased very slightly to around 24 percent for 3-month funds from Tuesday’s 25 and compared with interbank rupiah rates of 12.28 percent