LIBOR Lower on the Day By Tony Crescenzi RealMoney.com Contributor 9/13/2007 1:24 PM EDT

In addition to today's data on commercial paper, another factor behind today's rally in the equity market is the decline that occurred in the London Interbank Offered Rate (LIBOR), particularly in sterling-based LIBOR, dollar-based LIBOR, and Euro-based LIBOR. Elevated LIBOR rates have concerned investors in recent weeks, both because of the vast amount of debt obligations tied to LIBOR and because high levels of LIBOR have signaled strain in the global banking system, especially in Europe, where the banking system there is not as integrated as in the U.S. Hence, declines in LIBOR reduce the cost of debt obligations and indicate reduced strain in the global banking system.

Sterling-based LIBOR has fallen by about 2 basis points on the day, with three-month sterling-based LIBOR falling 2.25 basis points to 6.88% compared to yesterday. Euro-based three-month LIBOR (EURIBOR) fell 1.2 basis points to 4.73%, and dollar-based three-month LIBOR fell about 1 basis point to 5.69%.

Sterling, EURIBOR, and Eurodollar futures indicate another decline will occur overnight. The September 90-day sterling contract (open interest is 540,000) is trading at 6.73%, down 14 basis points on the day. The September 90-day EURIBOR contract (open interest is 935,000) is trading down 3.5 basis points, and the September Eurodollar contract, which is dollar-based, is trading down about 6 basis points on the day.

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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

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