Libor Plunges Most Since 2008 as Rate Catches Up to Fed-Cut Bets

(Bloomberg) -- One of the world's most important short-term interest rates staged its biggest one-day drop in more than a decade Wednesday in a sign that markets are bracing for even lower U.S. borrowing costs in the face of the spreading coronavirus.

The three-month London interbank offered rate for dollars -- a benchmark for trillions of dollars in financial products globally -- sank 31.4 basis points to 1.00063%. That's the biggest one-day slide since October 2008, the height of the global financial crisis.

The move reflects a market that's catching up with front-end rates that had already begun pricing additional Federal Reserve rate cuts even after Tuesday's emergency half-point reduction. Fed officials have a scheduled meeting on March 17-18.

Futures traders are pricing in about 31 basis points of further Fed rate cuts by the end of March, assuming the fed effective rate will set at around 1.09% over the next day. Overnight index swaps settled under 1% Tuesday, also suggesting more easing is expected.

It's not just short-term rates that are indicating market concerns over the virus's impact. The 10-year Treasury yield sank below 1% Tuesday for the first time, and it stood around 0.99% Wednesday morning as stocks showed signs of stabilizing.

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark Tannenbaum, Debarati Roy

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