RTRS: Dollar spreads tighten, yen spreads still wide
Dollar lending rates crept down in Asia, reversing direction after two sessions, as credit markets took comfort from Britain's second bailout for banks and ahead of possible measures a new U.S. government might unveil.
Lending spreads, which had widened as Royal Bank of Scotland (RBS.L) announced the biggest loss in British corporate history, and big U.S. banks such as Bank of America Corp (BAC.N) and Citigroup (C.N) posted huge losses, also tightened on Tuesday.
But pockets of strain remained in interbank markets, showing markets were still wary of lending to each other and were bracing instead for a long period of corporate and bank losses and write-offs as economic growth slows dramatically.
The rate on three-month dollar funds in Singapore slipped to 1.1398 percent from 1.14167 percent on Monday, still not quite near 5-year lows of 1.09036 percent last week. The two-year dollar swap spread, the mark-up of swaps over comparable treasury yields, tightened to 59.25 points from wider levels of 63 on Monday.
But the Bank of Japan conducted a second special unlimited funding operation to support corporate financing, while the Bank of Korea once again auctioned $3 billion of dollar/won swaps.
The yen funds were offered at 0.1 percent, which is Japan's policy rate, in the second such funding operation under a scheme that is set to continue until April.
"A low interest rate is adopted for this operation and the banking funding cost is gradually declining," Chotaro Morita, chief strategist for Japan at Barclays Capital.
"We have not seen any drastic impact for now, but the BOJ will continue this operation and the positive effect is gradually increasing," he said.
Yen interbank rates have been inching down, but extremely slowly in an economy where bank lending is rising at a record pace but distrust of longer-term lending runs high.
The Bank of Japan is seen announcing new plans to buy commercial paper and corporate bonds after a policy meeting on Wednesday and Thursday.
Three-month yen TIBOR was at 0.72 percent on Tuesday, having come off peaks of 0.91 a month ago but still significantly higher than overnight cash rates near 0.1 percent.
