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Bailout won't be immediate remedy for credit market ills
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NEW YORK - The credit markets got a bailout bill, but the stranglehold hasn't let up.
Credit markets, where companies go to get cash loans, have seized up since the bankruptcy of Lehman Brothers Holdings Inc. and in anticipation of the $700 billion plan initially voted down by the House. A revised version was signed into law Friday, but anxiety about its effectiveness kept demand for Treasury bills high and nearly nonexistent for other types of debt.
The Treasury will buy banks' risky mortgage-backed assets in an effort to alleviate investors' worries about the institutions' solvency and free them up to do more lending. Even if those efforts succeed, borrowing could remain very expensive for some time. Lending to consumers and businesses will still appear risky until factors such as employment and the housing market improve.
On Friday, the London Interbank Offered Rate, or LIBOR, for three-month dollar loans rose to 4.33 percent from 4.21 percent Thursday. That bank-to-bank lending rate has been rising all week, showing that banks are growing less and less willing to lend out their cash for longer than overnight.
LIBOR for overnight dollar loans plunged to a bit below 2 percent on Friday, the lowest rate in nearly four years.
The yield on the three-month Treasury bill slipped to 0.50 percent from 0.70 percent late Thursday. The discount rate on the three-month was 0.47 percent.
ASSOCIATED PRESS
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