Time 3:50

Market Commentary:

FT reports money markets in the US and Europe are signalling renewed fears about the financial strength of banks, with key confidence barometers almost returning to the levels that preceded the collapse of Bear Stearns. The concerns are being highlighted by the difference between overnight lending rates set by central banks and three-month Libor, the rate at which banks lend to each other. This spread, known as the overnight index swap rate, has been rising in the US and remains elevated in Europe, indicating that banks are reluctant to lend to each other. "Libor is still dysfunctional and, for whatever reason, banks still appear unwilling to lend funds," said Dominic Konstam, head of interest rate strategy at Credit Suisse. The difference between the overnight central bank rates and three-month Libor was typically about 12 basis points before global credit turmoil grew worse last summer. In the US on Wednesday, that spread rose 2bp to 77.5bp. In the UK, the swap rate gained 2.45bp to 95.45bp on Wednesday. In Europe, the swap rate was up 1.29bp at 74.68bp.