NEW YORK – The jammed credit markets barely budged Monday as European governments scrambled to prop up their failing banks and investors waited for details on how, exactly, the Treasury will go about buying $700 billion of U.S. banks’ mortgage assets.
If lending remains tight, it could cause more cashflow problems for the companies and municipalities that rely on the credit markets and banks for short-term loans.
Energy retailer Reliant Energy, for one, indicated Monday it may be searching for a buyer after getting slammed by stricter credit standards that forced it to raise $1 billion last week. And tobacco company Altria Group Inc. reportedly might delay its acquisition of smokeless tobacco maker UST Inc. at the suggestion of its lenders.
Bank-to-bank lending remained pricey Monday, indicating that financial institutions are still loath to lend.
The London Interbank Offered Rate, or LIBOR, for 3-month dollar loans eased only slightly to 4.29 percent from Friday’s nearly nine-month high of 4.33 percent. The overnight LIBOR for dollar loans — which dropped Friday to a nearly four-year low just below 2 percent, the Federal Reserve’s target overnight rate — edged back up to 2.37 percent.
Treasury bill yields remained extremely low, suggesting that investors such as money market mutual funds are still sticking to the safety of short-term government debt rather than short-term corporate debt known as commercial paper.
The yield on the 3-month T-bill fell to 0.44 percent from 0.50 percent late Friday. Yields move opposite prices.
On Friday, the House passed the revised $700 billion financial rescue plan, after the Senate approved the bill earlier in the week. But potential lenders remain wary — some banks are still having difficulties staying afloat, and no one knows yet how much the Treasury will pay for the institutions’ risky mortgage-backed assets.
Over the weekend, the mortgage crisis spread across Europe. The German government and financial industry agreed to a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France’s BNP Paribas agreed to acquire a 75 percent stake in Fortis’s Belgium bank after a government rescue failed. Governments in Germany, Ireland and Greece said they would guarantee bank deposits.
And Federal Reserve said Monday it will begin paying interest on commercial banks’ reserves, and lift 28-day and 84-day cash loans to banks to $150 billion apiece.