How is central bank stimulus impacting global interest rates like Libor?

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Central Bank Stimulus Drives Global Interest Rates to Record Lows

Massive central bank stimulus measures have significantly suppressed borrowing costs, leading key global interest rates like the US dollar London Interbank Offered Rate (Libor) and its European counterpart, Euribor, to hit record lows. The three-month US dollar Libor reached approximately 0.21 per cent, a decline of over 100 basis points from its March peak. This reduction in interbank lending rates reflects an environment of abundant liquidity injected into financial markets by central banks, a phenomenon also observed in tighter corporate bond spreads.
Suppression of Borrowing Costs

The substantial stimulus programmes implemented by central banks have effectively lowered borrowing costs across major economies. The three-month US dollar Libor, a critical benchmark for trillions of dollars in derivatives and loans globally, has fallen to historic lows. This decline is more than 100 basis points below the rates seen in March, a period marked by heightened market volatility due to the coronavirus crisis. Analysts note a disconnect between the peak rates observed in March and the current record lows, suggesting a suppression of credit risk pricing.
Abundant Liquidity in European Markets

In Europe, the three-month Euribor has also experienced a similar descent to record lows, driven by the significant liquidity released by the European Central Bank. This rate has recently been fixed at -0.507 per cent, nearing its all-time low of -0.51 per cent. The overall environment in both US and euro money markets is characterised by extremely low market liquidity, which is pushing rates downwards and diminishing the perceived risk compared to earlier in the year.
Impact of Quantitative Easing and Fiscal Expectations

The Federal Reserve's balance sheet assets have expanded by over US$7 trillion, with quantitative easing bond purchases nearing US$3.1 trillion, according to TD Securities. This expansion of central bank assets underscores the scale of liquidity being injected into the financial system. Furthermore, expectations for potential fiscal stimulus measures may also be contributing to the downward pressure on interest rates, as market participants anticipate further support for the economy.

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How is central bank stimulus impacting global interest rates like Libor?

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