To: Hawkmoon who wrote (8406 ) 11/20/2007 5:13:58 PM From: John Pitera Respond to U.S. Two-Year Interest-Rate Swap Spread Reaches 18-Year High surged to the highest in at least 18 years as bank borrowing costs rose and speculation increased that credit-market losses will widen. 101.75 basis points, the largest gap since at least November 1988, when Bloomberg began compiling the data. The difference was 97.35 basis points at 3:27 p.m. in New York, compared with 96.75 basis points yesterday. A basis point is 0.01 percentage point. de-leveraging in the financial system they were followed by a recession. Liquidity is absolutely horrible.'' credited with entering into the first widely recognized swap in 1981 , according to the International Swaps and Derivative Association's Web site. The transaction involved a currency swap with a notional value of $210 million done by Salomon Brothers Inc., according to ISDA. interest-rate derivatives, $347.09 trillion in the first half of 2007 versus the second half of 2006, according to ISDA's Mid-Year 2007 Market Survey of privately negotiated derivatives published on Sept. 26. In 1987, was $865.60 billion. Libor is half a percentage point above the Federal Reserve's benchmark overnight lending rate of 4.5 percent, the most since Oct. 8. Short-term borrowing rates climbed to a 6 1/2 year high in mid-August as banks acknowledged their vulnerability to rising defaults on subprime mortgages and curbed loans to all but the safest borrowers. floating payments are based on interest rates that contain credit risk , such as the Libor. The rate on a U.S. two-year interest-rate swap is 4.16 percent , while the benchmark U.S. two-year note yield is 3.16 percent. ``As long as the liquidity crisis goes on, with Libor rates rising , and people keep buying Treasuries, these spreads will remain wide,'' said Fidelio Tata, head of derivatives strategy at RBS Greenwich Capital in Greenwich, Connecticut. ``Banks, and financial institutions in general, are short credit and really don't want to lend. It won't get much better until after year- end.'' default on their debt is accelerating as analysts increase their estimates of losses from subprime mortgages, credit-default swaps show. rose 16 basis points to 95 basis points over the past two days, according to broker Phoenix Partners Group, setting a record today for the seventh time this month. A rise signals investors are less confident in a company's creditworthiness.
