Libor down, spreads with OIS fall too

LONDON: The cost of borrowing dollars among banks in London capped its biggest weekly drop since March. The London interbank offered rate (Libor) that banks charge for three-month loans fell two basis points to 0.94% on Friday, completing an eighth week of declines, the longest run of decreases since February 2008.

The Libor-OIS spread, a barometer of the unwillingness of banks to lend, fell to the lowest level in more than nine months. Libor, a benchmark rate for about $360 trillion of financial products worldwide, fell to below 1% for the first time this week, as reports on employment and home sales added to evidence the worst of the recession is over.

The three-month dollar rate fell seven basis points this week, the most since the five days through March 20, when it dropped nine basis points. The BBA sets Libor each day by surveying banks on how much it would cost them to borrow from each other for 15 different periods.