3-month LIBOR Increases

August 15, 2016

3-month LIBOR Increases Photo

Not much has changed in the last few weeks for the markets. Economic data is mixed in the U.S., and concerns still exist about global economic conditions. Most market commentary centers on monetary policy and the impact of low or negative interest rates.

With this as the background, it has been interesting to see the increase in U.S. 3-month LIBOR over the last month. Since June 24, the rate has increased from 0.62% to 0.82%. The last time LIBOR increased this much was right before the Federal Reserve (Fed) increased interest rates in November/December of last year. So, is the Fed going to increase rates in September, or is something else going on?

It is interesting to me that LIBOR has been rising ever since the Brexit vote on June 23. One explanation is that, due to the change in money market fund rules, money has been flowing out of prime funds into government funds and, as a result, putting pressure on banks to secure short-term funding.

I will be watching 3-month LIBOR over the next few weeks to see if the increase has broader implications for the market and economy.

Tags: Monday Morning O'Malley | Federal Reserve | Brexit | LIBOR | Prime funds

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