U.S. commercial paper issuance rose for an eighth straight week while bank borrowing costs held near record lows on Thursday, further evidence of improvement for struggling credit markets. However, plenty of concern remained on the economic front, forcing key European central banks to keep official interest rates on hold.
Commercial paper, a key short-term lending instrument for corporations that was buffeted heavily by the global financial crisis, showed signs of perking back up. Total loans outstanding rose by $67.6 billion to $1.299 trillion.
The U.S. central bank's Commercial Paper Funding Facility, which started in October 2008, had as much as $350.5 billion in top-rated, three-month CP in late January. Since then, its CP holdings had fallen to $42.7 billion as of last week, indicating banks are increasingly able to access funds in the private market.
'The fact we are starting to see a rebound, it's a positive sign,' said Deborah Cunningham, chief investment officer of money markets with Federated Investors in Pittsburgh.
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Libor rates, which banks charge one another for loans, edged up marginally overnight. But they remained close to recent troughs that reflect not only better conditions but also unprecedented lending by the world's major central banks.
Both the European Central Bank and the Bank of England held rates steady. The ECB left its key refi rate unchanged at 1 percent. President Jean-Claude Trichet touted improved market functioning, but appeared tentative on prospects for recovery.
Meanwhile the BoE kept lending rates at 0.5 percent and its asset purchase program unchanged at 175 billion pounds.
However, analysts cautioned that there was still plenty to worry about on the economic front, despite improvements in global stock markets that have reinvigorated investor confidence.
'Financial market conditions have normalized and from that you would expect the economy to normalize but that hasn't happened yet,' said Kenneth Broux, market economist at Lloyds in London.
One potential source of problems was the U.S. labor market, whose troubles are expected to keep consumer spending under pressure in coming months.
The Labor Department offered some encouraging news on that front on Thursday, with weekly jobless claims falling to a nine-month low of 521,000, although some economists worried this reflected in part the expiry of benefits rather than new hiring.
Thursay's rate decisions in Europe came exactly a year after the world's major central banks made coordinated interest rate cuts to head off recession and unfreeze money markets in the aftermath of Lehman Brothers ( LEHMQ - news - people )' collapse.
ONE YEAR LATER
Money market rates have fallen sharply from highs seen post-Lehman Brothers as central banks flooded the system with excess liquidity and slashed official interest rates.
Ahead of the ECB and BoE rate decisions, benchmark euro Libor rates edged up to 0.70188 percent from 0.69875 percent on Wednesday, according to the latest daily fixing from the British Bankers' Association.
Equivalent sterling rates were unchanged at 0.55125 percent with the BoE maintaining lending rates at 0.5 percent and its asset purchase programme unmoved at 175 billion pounds.
Dollar rates were also unmoved at 0.28438 percent According ICAP's New York Funding Rate, or NYFR, three-month borrowing rates for U.S. banks were 0.2963 percent on, down from the previous session's 0.2988 percent, ICAP said.
Commercial banks were still parking excess cash with the ECB, with latest data showing overnight deposits at their highest since Aug. 10 at 171.524 billion euros on Wednesday compared to 167.192 billion on Tuesday.
The deposits have risen since banks received 75 billion euros of one-year ECB funds last week, but are around half of the level deposited by banks after the ECB's first one-year tender in June.
'Trichet acknowledges that the worst may be over but it is important to remain on high alert because there is still a great deal of uncertainty and there is a need to watch the evolution in the financial sectors,' said Aurelio Maccario, economist at UniCredit.