That Sinking Feeling As Libor Spikes

When Libor spikes, we need to sit up and pay attention. Why? It's telling us that the financial system is feeling real stress. Stress that goes beyond a vanilla fall in equity markets, but more of the type that could become as infectious as the coronavirus is for the financial system.

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A financial crisis reminder?

Few spend time looking at Libor. We don't blame you.

It's old-school, and it will be replaced by new risk-free rates after 2021. Also, Libor is more about where banks can print commercial paper these days than a measure of risk attached to interbank lending (as there is virtually no volume there). But when it spikes, as it has been doing in the past couple of days, we need to sit up and take attention. This is, in fact, reminiscent of the beginnings of the extremes we saw during the financial crisis.

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