Three-month Libor eases on central bank efforts

LONDON/NEW YORK, Nov 18
Interbank lending rates slipped on Tuesday but financial institutions continued to hoard cash ahead of year end and remained dependent on central banks as the de facto sole lender, analysts said.
Three-month dollar Libor rates eased at Tuesday's fixing after posting three days of rises on concerns over comments from U.S. Treasury Secretary Henry Paulson regarding the use of funds in Washington's emergency financial package.

There are concerns and cash is being hoarded despite the TARP (Troubled Asset Relief Program) and the Fed's interest rate actions. If you look at the equity performance of the banks, there is really still not much to be happy about," said Calyon rate strategist David Keeble. Bank-to-bank dollar, euro and sterling interest rates fell, but analysts said banks continued to stockpile cash.
"Lending on the dollar side is starting to dry up ahead of the end of the year and there are very few lenders coming into the market," said Keeble. Euribor bank-to-bank lending rates extended their more-than-month-long series of falls, dropping to a 16-month low..

Central banks were very active with operations designed to pump liquidity into the market and help trim rates. The European Central Bank allotted 338.0184 billion euros of seven-day funds on Tuesday to 851 banks, compared with 334.4 billion euros to 848 banks a week earlier. "Banks will cope with year end for I guess you could say the wrong reason," said Howard Simons, strategist with Bianco Research in Chicago.
"With funds being poured in at a rate far greater than demand for them to go out, they will not have any sort of funding problem and if they do, central banks will step in and take care of them," he said.

The Fed's $150 billion Term Auction Facility of short-term funds offered to banks had a bid-to-cover ratio of 0.70, showing there were more than adequate funds to meet demand from banks at the sale.
But some measures of risk aversion ebbed.
The U.S. 2-year interest rate swap spread narrowed to 106.75 basis points early on Tuesday afternoon, from 108.50 basis points late on Monday.