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Drop in Overnight Rate Suggests Crisis `Easing'': Chart of Day

By Mark Gilbert

Oct. 21 (Bloomberg) -- Declining money-market rates suggest government efforts to repair the banking system are alleviating the credit crunch, according to Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.

``Signs are emerging that the credit crisis is in the early stages of easing,'''' Sowanick, who helps manage $20 billion, wrote in a research report this week. ``The most impressive signal has been the near-collapse of the overnight Libor rate.''''

The CHART OF THE DAY shows the slump in the cost of borrowing dollars overnight, as measured by the London interbank offered rate. Overnight Libor has dropped to 1.51 percent from as high as 6.88 percent on Sept. 30, compared with the Federal Reserve''s current 1.5 percent policy rate.

``Short-term borrowers will soon begin to feel the benefits of the Fed''s aggressive rate-cut program,'''' Sowanick wrote. ``We know that financial markets lead economic activity by six to 12 months, so waiting for the economy to gain a more stable footing before reallocating to equities, financials specifically, may prove too costly.''''

To contact the reporter on this story: Mark Gilbert in London at magilbert@bloomberg.net
Last Updated: October 21, 2008 05:49 EDT