The 3-month London Interbank Offered Rate, or Libor, has recorded its strongest month-over-month increase from the start of June to the start of July in at least twelve months.
From the first business day of June to the first business day of July, the 3-month Libor rate increased by 8.266 basis points, from roughly 1.22% to about 1.30%. Previously, the strongest increase in this rate had been from August to September 2016, when the rate saw a rise of 7.657 basis points from ~0.76% to ~0.84%.
The magnitude of increases in that period and the current period may have been similar, but the consequences are different. An increase in the Libor rate to 1.3% at this magnitude of over eight basis points signifies tighter financial conditions, tightening at a respectable pace. To be sure, a Libor rate of 1.30% today is well below the 4.54% rate seen at the start of January 2006, just before financial markets began seizing up as the financial crisis commenced.
Thus, a Libor rate of 1.3% still reflects rather loose monetary conditions - however, these conditions are certainly tighter than those seen in fall 2016, going strictly by the three-month Libor rate. Indicators such as the St. Louis Fed's Financial Stress Index show incredibly accommodative monetary policies, ascertained by a broad variety of financial instruments and indicators. I don't disagree with this, hence the emphasis on how monetary conditions appear somewhat tighter only relative to last fall.
From the start of June 2017 to the start of July 2017, the three-month Libor rate increased at a magnitude not seen in over a year, indicating a quickening pace of tightening monetary conditions. However, when zooming out to broader indicators (e.g. St. Louis Financial Stress Index) and broader timeframes (e.g. 3-month Libor in January 2006), monetary conditions remain quite accommodative. For now, this is merely something to keep an eye on.
Andrew
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| Note: Dates are meant to signify the start of each month, and the first of each month may not necessarily have been a business day. |
From the first business day of June to the first business day of July, the 3-month Libor rate increased by 8.266 basis points, from roughly 1.22% to about 1.30%. Previously, the strongest increase in this rate had been from August to September 2016, when the rate saw a rise of 7.657 basis points from ~0.76% to ~0.84%.
The magnitude of increases in that period and the current period may have been similar, but the consequences are different. An increase in the Libor rate to 1.3% at this magnitude of over eight basis points signifies tighter financial conditions, tightening at a respectable pace. To be sure, a Libor rate of 1.30% today is well below the 4.54% rate seen at the start of January 2006, just before financial markets began seizing up as the financial crisis commenced.
Thus, a Libor rate of 1.3% still reflects rather loose monetary conditions - however, these conditions are certainly tighter than those seen in fall 2016, going strictly by the three-month Libor rate. Indicators such as the St. Louis Fed's Financial Stress Index show incredibly accommodative monetary policies, ascertained by a broad variety of financial instruments and indicators. I don't disagree with this, hence the emphasis on how monetary conditions appear somewhat tighter only relative to last fall.
From the start of June 2017 to the start of July 2017, the three-month Libor rate increased at a magnitude not seen in over a year, indicating a quickening pace of tightening monetary conditions. However, when zooming out to broader indicators (e.g. St. Louis Financial Stress Index) and broader timeframes (e.g. 3-month Libor in January 2006), monetary conditions remain quite accommodative. For now, this is merely something to keep an eye on.
Andrew
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