NEW YORK — The credit markets might not be quite as squeezed as they have been recently, thanks to the Federal Reserve’s interest-rate cut. But they’re hardly back to normal.
In two signs of continued strain, a key bank-to-bank lending rate rose Thursday and the amount of commercial paper in the market fell for the fourth straight week to 15 percent below the level before investment bank Lehman Brothers filed for bankruptcy.
While lending doesn’t appear to be in the same seized-up state as last week, year-end could prove a difficult time for funding as banks and other institutions try to get their books in order, said Kim Rupert, managing director of global fixed-income analysis at Action Economics.
“It looks like the central bank’s actions are starting to help marginally improve confidence enough where safe haven isn’t the only thing on investors’ minds,” Rupert said. “But it’s only one small step so far. It’s going to be a very jagged type of improvement. There’s still a lot of factors that are going to keep anxiety at elevated levels.”
The London Interbank Offered Rate, or LIBOR, for three-month dollar loans rose to 4.75 percent from 4.52 percent Wednesday.
A month ago, three-month LIBOR was at 2.81 percent.
That stubbornly high LIBOR is just one of the reasons that the stock market has been tumbling.
LIBOR’s sharp jump over the past month is worrisome because consumer loans such as adjustable-rate mortgages are tied to LIBOR — meaning that those mortgages could become harder to pay.
Meanwhile, commercial paper outstanding dropped for the fourth straight week. Commercial paper is a type of debt companies sell to get short-term cash, often so that they can maintain their inventories and payrolls.
The Fed said commercial paper outstanding fell by $56.4 billion to a seasonally adjusted $1.55 trillion in the week ended Oct. 8 — that’s down from $1.82 billion Sept. 10 and down 30 percent from the peak of $2.2 trillion in the summer of 2007.
As companies have a harder time getting financing, businesses and municipalities have been taking action to try to adapt.
