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Confidence continues to increase in the credit market

14 Sep 2007

Sterling BBA LIBOR rates have continued their recent trend down from historic highs against the base rate.

The key three–month Sterling BBA LIBOR dropped from 6.88000 to 6.82375 per cent today, easing further from the record high of 6.90375 per cent on 11th September. This indicates that liquidity is beginning to trickle back into the interbank lending markets.

Overnight Sterling BBA LIBOR has held steady at 5.87375, which is approaching levels over the base rate seen in the stable market conditions prior to August this year. The base rate, as set by the Bank of England, is currently 5.75 per cent.

In other markets this trend continues, with overnight, three-month and twelve-month figures dropping further in both US Dollar and Euro.

Sterling BBA LIBOR rates for Friday 14th September:

  • Overnight: 5.87375
  • Three–month: 6.82375
  • Twelve–month: 6.53500

Euro BBA LIBOR:

  • Overnight: 3.67500
  • Three–month: 4.72750
  • Twelve–month: 4.70125

USD BBA LIBOR:

  • Overnight: 5.12625
  • Three–month: 5.64625
  • Twelve–month: 5.12375

Key facts about BBA LIBOR

1. What is BBA LIBOR?

The British Bankers& Association London Interbank Offered Rate closely reflects the real rates of interest being used by the world’s big financial institutions.

Central banks (such as the Bank of England, the US Federal Reserve and the European Central Bank&41; may fix official base rates monthly, but BBA LIBOR reflects the actual rate at which banks borrow money from each other. BBA LIBOR figures are issued daily on more than 300,000 screens around the world. Rates are quoted for a range of borrowing periods, ranging from overnight loans to 12 months, and a range of world currencies.

When referring to these rates, please note 'LIBOR' is a generic term, which refers to an individual bank’s rate. 'BBA LIBOR' is the benchmark index of London interbank lending. The term LIBOR has been used erroneously to describe this industry standard, but as individual banks may calculate their own Libor rates, the term BBA LIBOR should be used to distinguish them.

2. Why is it in the news?

Because BBA LIBOR rates are calculated daily from the rates at which banks agree to lend each other money, it is a more accurate barometer of how global markets are reacting to market conditions. Recently the overnight borrowing rate has been moving considerably.

3. How is it calculated?

The BBA uses Reuters to fix and publish the data daily, usually before 12 noon UK time. It assembles the interbank borrowing rates from 16 contributor panel banks at 11am, looks at the middle 50 per cent of these rates and uses these to calculate an average, which then becomes that day’s BBA LIBOR rate. This process is followed 150 times to create rates for all 15 maturities (ranging from overnight to 12 months) and all 10 currencies for which a BBA LIBOR rate is quoted.

4. What should I be looking for?

Dramatic changes in the overnight BBA LIBOR rate mean that there is short term volatility in the markets. The overnight rate is the rate which is most often quoted in the financial press. The banks' longer-term expectations for the markets are more clearly evident in the 12–month figures.

5. How did it become so important?

BBA LIBOR was first developed in the 1980s as demand grew for an accurate measure of the real rate at which banks would lend money to each other. This became increasingly important as London’s status grew as an international financial centre. More than 20 per cent of all international bank lending and more than 30 per cent of all foreign exchange transactions now take place in London.

BBA LIBOR is now used to calculate the interest rates for a range of financial instruments and derivatives based on the BBA LIBOR rates are now traded on exchanges such as LIFFE, the Chicago Mercantile Exchange (CME) and SIMEX. Independent research from Prof. Donald Mackenzie of the Universtiy of Edinburgh estimates that financial derivatives totalling USD 150 trillion are indexed to BBA LIBOR.

Notes to Editors

This briefing is part of an occasional series offered to journalists while the current market volatility continues.

The BBA permits the use of the logo for BBA LIBOR in appropriate circumstances, including media reports. You can download a copy of the logo from the external link below.

Daily BBA LIBOR rates are published by Reuters and are available also through Thomson Financial, Telekurs, Bloomberg, Infotec, IDC, Quick, Class Editori, Proquote and other information providers.

Historic BBA LIBOR rates are available from the link below.

 Related Links

Historic BBA LIBOR rates (Internal Link)
BBA LIBOR Logo (External Link)

 
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