A first since 2007: Libor cracks 5% on Fed hike outlook

The three-month London interbank offered rate for dollars, a major global lending benchmark, surpassed 5% for the first time in more than 15 years on Monday.

The benchmark rate for lending between banks rose 2.4 basis points to 5.008%, the highest since December 2007. The spread of Libor over overnight index swaps - a barometer of funding pressure - widened to 3.2 bps from 1.7 bps the prior session.


Much of the recent surge in Libor, which is set to be phased out on June 30, has been driven by expectations for Fed policy tightening. Traders not only expect a higher terminal rate, but the Fed to stay at that level for a longer period than previously expected.

"The rise in Libor only makes sense as front-end rates continue to move higher on stronger data and expectations for more Fed rate hikes," said TD Securities strategist Gennadiy Goldberg. "Libor-OIS remains quite tight, hinting at few funding pressures."

While Libor is moving in line with many other short-term rates, there are other elements that feed into the daily setting, including the backdrop for commercial paper transactions and broader credit conditions.