Whisper it softly — but something is afoot in money markets.

The below charts, showing US dollar, sterling and euro Libor rates, via Marc Ostwald at Monument Securities, show an ineluctable trend upwards in recent weeks.

Here’s what he says:

Take a look at the attached charts of USD, GBP and EUR Libor, which compares current levels with those on March 30 (i.e. end Q1). Quite obviously the net changes that are shown at the bottom of the charts tend to exaggerate the upward drift, but it is still a fact that term USD rates have risen 6-12 bps, term GBP rates by 3-6 bps and perhaps ironically term EUR rates are little changed at major dates (3M, 6M & 1Yr), though have drifted up 2-3 bps in broken dates. More than likely the differential changes have more to do with where each of the respective central banks are in terms of withdrawing their liquidity programmes (but not I would stress actually “withdrawing liquidity”). The point is that that this upward drift has occurred with the end of the injections of liquidity, and above all with the Fed clearly ‘floating a balloon’ to try and gauge how well USD money markets can cope without the Fed’s assistance. While the rightly sceptical reception for the Greek bail-out, the leftfield events of Australian mining tax and the SEC’s charges against Goldman could individually and/or collectively be deemed as triggers for the current bout of ‘risk aversion’.

And this is the Lehman-esque bit:

This drift higher in money rates is a reminder a) that the less bad data of recent months is precisely that, “less bad” and not “good”, and b) for all the impressive earnings results from major financials, particularly in investment banking terms, the G7 ex-Canada financial sector is showing tell tale signs that it is already struggling to “come off life support”. Worryingly the rumours of credit lines being cut in interbank markets on concerns about Greek contagion finds a horrible echo in the events of July/August 2007. Nevertheless we would stress that this is not de facto a cause for pessimism, but rather that extant realities need to check, indeed have checked some of the more phantasmagorical optimism & complacency that appeared to grip some sections of financial markets in recent months.

More on money market stress in Thursday’s FT.

Related links:
Lehman-Greece parallels du jour – FT Alphaville
Around the world in three Libor rates - FT Alphaville
Europe is Lehman-fied – FT Alphaville

This entry was posted by Tracy Alloway on Thursday, May 6th, 2010 at 8:45 and is filed under Capital markets. Tagged with Banks, eurolibor, Greece, Libor, liquidity, Money markets. Edit this entry.