"Baked In The Cake" - Why LIBOR's Blowout Has Already Done Its Damage

The global funding market crisis is getting worse and its contagion is starting to show up in assets that 'mom and pop' care about. Bank stocks are being battered...

Following bank credit risk's spike...

And European High Yield risk has exploded to one-year highs...

European stress is worse than US for now, as Charlie Diebel, head of rates at Aviva Investors, notes:

"The longer it [LIBOR-OIS increase] goes on, the more pronounced the effects are going to be...

It complicates the efforts of policymakers because in Europe we still have QE (quantitative easing), but we have some sort of tightening coming at the same time."

And Investment Grade credit risk is soaring to six-month wides in EU and US...

Simply put, LIBOR doesn't need to blow out any more for the pain to emerge...

As one veteran credit-trader exclaimed: the bank credit pain "is baked in the cake" as the lagged reaction to short-term funding needs (and soaring costs) creeps into those so-called fortress balance sheets.


heads_and_thales Fri, 03/23/2018 - 14:52 Permalink

I was at an event yesterday where someone asked the Bank of Canada deputy governor what keeps her up at night. This is exactly what she said - she said she is worried about rising LIBOR and the impact of rising rates on corporate credit markets more generally. JUST KIDDING. She said she sleeps well at night. Why wouldn't she? 

abgary1 Fri, 03/23/2018 - 15:32 Permalink

When the banks start questioning their own ability to pay, the bull market in everything is over.

Their balance sheets must be getting ugly.

GotGalt Fri, 03/23/2018 - 17:56 Permalink

Never has there been a better time to be 


NOT in debt

have TONS of cash/PMs (at bottom of lake sadly)


I'm practically creaming myself about the possibilities moving forward.

Youri Carma Sat, 03/24/2018 - 23:28 Permalink

Baked in since Jan 4, 2017 I suppose;

3M LIBOR Tops 1.00% For First Time Since 2009
For the first time since April 2009, 3-month LIBOR - one of the most important reference rates for business financing - topped 1.00% today.
U.S. Libor breaks above 1% for first time since 2009
Jan 4, 2017 (Reuters)