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Posted by on Sep 12, 2011 in Markets, TG Roundup, Worldwide

It is Getting Uglier in Financial Markets

1:45 PM Update:

News Break: Some ugliness in credit markets. 3 mo LIBOR (London Interbank Offer Rate) is creeping up to levels close to March 2009. Now US 3 mo bills are sold at 3 mo LIBOR levels – which is at a rate higher than 3 year Treasuries. Translation: liquidity crisis. Looks like it is going to get even more ugly in financial markets for the next few days.

FYI, The LIBOR is widely used as a reference rate for financial instruments such as:

-forward rate agreements
-short-term-interest-rate futures contracts
-interest rate swaps
-inflation swaps
-floating rate notes
-syndicated loans
-variable rate mortgages
-currencies, especially the US dollar (see also Eurodollar).

At 8:15 AM this morning, the European bourses are looking like this:

Greek 1 year bond is now yielding 111.7%. It is almost certain that Greece is going to default. Germany is preparing its bank to face the consequences of Greek default. Moody’s is expected to downgrade the French banks any time. In the mean time, in US – stock futures are pointing to a sharply lower opening. I think the US is showing too much optimism – as evidenced by still undeflated bubble in such stocks as Netflix and Priceline.