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Fed's interest rate hike rises in December Three-month US dollar Libor refreshes 10-year high

November 09, 2018 02:56
source: Zhongjin Net
edit:Eastern Fortune Network

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  On Wednesday, the Fed’s chances of raising interest rates in December rose.

Huixin reminded that financial blog ZeroHedge pointed out thatThe United States has little hope of continuing fiscal stimulus measures in the future, and economic overheating is unlikely to occur. Therefore, the need for the Fed to further tighten monetary policy has weakened, but it is clear that this view has not yet entered the market.

On Wednesday, the 10-year US Treasury yield fell from the previous seven-year high, and the decline widened to nearly 4 basis points, with trading below 3.190%. The 30-year US Treasury yield also fell below the 3.40% mark, and the two-year US bond yield fell from the highest since 2008.

Letter reminder,The rise in the probability of raising interest rates has also led to an important indicator of the cost of inter-bank lending – the three-month dollar, Libor, rose by about 1 basis point to 2.6011%, the highest since November 2008.

Zerohedge believes that although Libor is being phased out, it is still an important benchmark for trillions of US dollar credit and floating rate securities. Even if Libor is secured overnight, it will be secured overnight.interest rateInstead of (SOFR), there are still about $36 trillion in financial instruments associated with LIBOR.

Off-siteinterest rateSwaps, leveraged loans (which are seen as the core of the next credit crisis), retail mortgages to complex securitizations are all related to LIBOR. The rise in the three-month US dollar Libor indicates that the continued tightening of the US dollar financing environment, commonly known as the “dollar shortage”, will pose significant risks to the overall financial situation.

Zerohedge believes that although Libor has not been considered as a catalyst for financial environment tightening, it is only a matter of time; the Fed will soon be forced to end the tightening cycle, and Libor will no longer be the main fixed income reference in 2021. Before the interest rate.

  The London Interbank Offered Rate (Libor) is the interest rate that large international banks are willing to borrow from other large international banks. Over the past few decades, the three-month dollar, Libor, has been the key short-term benchmark interest rate for offshore dollars and is the most important measure of interbank borrowing costs.

According to previous data from the US Commodity Futures Trading Commission (CFTC), more than $800 trillion in securities or loans worldwide are linked to Libor, which directly linked Libor with $350 trillion swap contracts and $10 trillion loans. Pricing basis for financial products such as commercial loans, home mortgages, and derivatives contracts.

The UK Financial Conduct Authority (FCA), which is responsible for Libor information collection and regulation, said last year that it will begin to develop plans to phase out Libor by the end of 2021. On April 3 this year, the Federal Reserve Bank of New York and the Financial Research Office of the Ministry of Finance introduced a guaranteed overnight financing rate (SOFR) and two other reference rates to gradually replace the London Interbank Offered Rate (Libor). Unlike Libor, the SOFR rate is based on overnight trading in the government bond repo market.

SOFR will be lower than Libor's interest rate from a design perspective. The successful promotion and adoption of SOFR may effectively reduce the cost of dollar financing. “Stable”, “reliable” and “large liquidity” are the core logic of the Fed’s intention to replace the US dollar Libor with SOFR. Federal Reserve Chairman Powell has said that SOFR is derived from the deepest, most resilient and most stable financing market in the US market. These characteristics correspond to Libor's shortcomings.

(Article source: Zhongjin.com)

                (Editor: DF392)

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