The 3-month LIBOR (London Interbank Offered Rate) cracked 5% for the first time in 15 years on Monday, on account of the rise in expectations of Fed policy tightening. The LIBOR is a globally accepted benchmark rate at which major banks lend to one another in the international interbank market. An increase in LIBOR generally reduces the value of fixed income securities due to higher interest rates and borrowing costs.
Why did it happen?
The recent increase in LIBOR is largely driven by the recent congress testimony by Fed Chair Powell, which largely increased the probability of a 50-bps rate hike in the upcoming March meeting. The latest testimony has once again made it clear that the US Fed’s focus remains to bring down inflation levels by increasing interest rates, thereby cooling the economy...