You couldn’t really call it a calming effect, as rates never truly settled down rather simply becoming less obviously meddlesome. At the September FOMC, the “dovish” sentiment that was apparently received brought LIBOR rates off their devastatingly devilish perch that had been building from all the way back in early July. As if it needed to be restated, that surge in rates coincided with all the messiness and fireworks in August as if to exclaim emphatically the “dollar” nature of all that was occurring. So the slack, for lack of a better term, into the end of September and early October in at least the LIBOR settings appeared to be a positive response to the “dovishness.”

As noted yesterday, however, that may have been the case but only in a narrow sense across the whole wholesale funding issue. If LIBOR was “better” then dealers still hoarding collateral showed that it was not in any way a universal reception (there were other senses of that, too, including and especially swap spreads). Maybe that provided just enough wiggle-room for the asset price rebound that swept through October, but all that (in money markets) is apparently ended now.

Though it is tempting to assign the more “hawkish” perceptions of the October FOMC statement as cause, there is more than enough evidence to look elsewhere for meaning. LIBOR rates especially 3-months and out have just swelled in an unwelcome and surreal echo of that early July impulse.

The 12-month maturity has now nearly matched the 2011 surge in terms of rate scale if further elongated in time. The 3-month maturity has, like the 12-month, found a great deal of nastiness just in the past few days (more on this below) which does not easily suggest FOMC policy incorporation.

While there was an undoubted boost in the “tightening” of these money markets around the October FOMC, the transition occurred clearly two weeks before that meeting – right at October 15 (why not?). Further, this surge in LIBOR (London euro/dollars) has not in any way been met by an increase in the effective federal funds rate (though I don’t want to make too much of that since EFF isn’t exactly voluminous in trade; it still is at least noteworthy given that EFF had through the September rise responded to LIBOR in kind). That would suggest something of a geographical fragmentation, though, again, it is best not to read too much into it further than a small factor for incorporating into analysis.

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