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| Weekly Interest Rate Tracking |
| September 25, 2008 |
Good Afternoon,
Attached is a PDF copy of Colliers Meredith & Grew's interest rate sheet that includes current and historical Treasury, LIBOR and Prime interest rates, which are updated daily with real time data from Strategic Alliance Mortgage.
We provide these updates on a weekly basis to keep our clients and colleagues aware of rate movements. We hope you find this information helpful.
DOWNLOAD INTEREST RATE SHEET (133KB)
The following Market Perspective provides insights and commentary on breaking news and emerging trends in commercial real estate finance.
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Bernanke Moves Closer to Rate Cut as Risks to Economy Intensify. Sept. 25 (Bloomberg) -- "Fed Chairman Ben Bernanke moved closer to cutting interest rates, signaling that risks to U.S. growth are greater than policy makers saw them just last week. The "intensification" of the financial crisis in recent weeks is curbing Americans' access to borrowing, making the outlook for consumer spending "sluggish at best," Bernanke told lawmakers in Washington yesterday. While he noted that risks to inflation remain, the Fed chief's testimony focused on "grave threats" to the banking system. Bernanke's assessment reflected further disruptions to money markets since the central bank met Sept. 16, when the FOMC left the benchmark rate at 2%. The 3-month LIBOR, a benchmark for confidence in the banking system, jumped the most in eight years today. Traders increased bets on a quarter-point rate cut at or before the FOMC's Oct. 28-29 meeting, sending the probability implied in futures contracts to 80% yesterday from 58$ the previous day. The FOMC cut rates 7 times from Sep-2007 to April. Still, interest-rate futures proved false in anticipating last month's decision, when the FOMC kept the main rate unchanged at 2% for a third meeting.
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LIBOR's accuracy under renewed scrutiny. Wall Street Journal's Carrick Mollenkamp reported yesterday, "the accuracy of a widely used interest rate, seen as critical to judging the health of the financial markets at a precarious time, is coming under question for the second time this year. Doubts about...Libor center on whether banks are understating what it costs them to borrow dollars in stressed financial markets. Libor's reliability became an issue again this week when banks paid higher interest rates to borrow using collateral than they did for unsecured loans.
Those questions come as central banks inject liquidity into the market to restore the confidence of banks that have been reluctant to lend to one another. Other lending markets, including commercial paper, which are short-term IOUs issued by companies, have also struggled, potentially causing a credit crunch to spread throughout the economy. Libor is supposed to reflect average bank-borrowing costs. Overseen by the British Bankers' Association in London, the rate serves as a benchmark for the borrowing costs of homeowners and companies. During the credit crisis, it has provided a gauge for whether banks trust one another enough to lend money. Last week, Libor rates surged in a sign that banks were having trouble borrowing money amid the problems at AIG Inc. and Lehman Brothers Holdings Inc.
Concerns about Libor's accuracy emerged out of the rates being paid in another market used by banks to get cash. The Federal Reserve's term auction facility, one of numerous efforts the Fed has been using to fight the credit crunch, allows banks to borrow, but they must put up collateral. Because of that, banks should be able to pay a lower interest rate than they do when they borrow from each other because those loans are unsecured. It is the same reason why rates for a mortgage, which is secured by a house, are lower than those for credit cards, where the borrower doesn't put up any collateral. In other words, the rate for the Fed auction should be lower than Libor.
But on Monday, the rate for the 28-day Fed facility was 3.75%, which was much higher than Libor. On Monday, the one-month dollar Libor rate was 3.19% while Tuesday's rate was 3.21%. The Fed facility should be lower, said Scott Peng, a Citigroup Inc. U.S. rate strategist. The "market needs some accurate transaction-based measure of interbank lending." Earlier this year, Libor appeared to be sending false signals. Banks complained to the BBA that rival banks might not be reporting their true borrowing costs because they didn't want to admit that others were treating them as if they had troubles. That led to a BBA review and the pledge that the rates banks contribute would be better policed. Every morning, 16 banks submit borrowing rates in a process that produces Libor rates at lunchtime in London. Lesley McLeod, a BBA spokeswoman, said the BBA stands by the Libor. "Libor is accurate," she said. "It is constantly monitored and currently reflects the extreme market volatility present in these unprecedented circumstances." Colliers Meredith & Grew Update - The one-month dollar Libor surged to 3.71% on Thursday.
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| Please contact the Capital Markets Group at Colliers Meredith & Grew with any financing questions.
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Colliers Meredith & Grew is a Boston-based commercial real estate company with integrated service groups including Brokerage, Capital Markets, Counseling & Valuation, Development & Advisory, Investment Sales, and Property & Asset Management. In addition to representing its core clients in New England, Colliers Meredith & Grew provides national and international real estate services to its multi-market clients as a member of Colliers International and as an owner/member of Strategic Alliance Mortgage LLC (SAM). Colliers International is a worldwide affiliation of independently owned and operated companies in more than 290 offices in 61 countries. |
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