We would have expected LIBOR to increase, particularly in light of the Madoff fraud ($50BN in assets gone!), but LIBOR continues to come in. As a measure of global counterparty risk, on balance, this is about as good as reference rates get (given Enron like fraud) and is a key unpinning of our bullish view on global equity markets in the immediate term.
In addition, the TED Spread continues to tighten as well and has narrowed to a level not seen since early September. This implies that the market is pricing in a much lower level of credit risk than in the past couple of months and that liquidity is improving sequentially.
Daryl G. Jones