SONIA, LIBOR, and British Pound Sterling/U.S. Dollar

The gauge for SONIA and British pound sterling LIBOR lies in the spread. The closer the spread in basis points, the more secure are money markets in terms of lending and borrowing with less risk. When spreads widen, it is an early warning sign to market risk as the cost of money increases. Would Bank B from the previous example be willing to cover reserve deficits in three-month LIBOR with wide spreads?

To track these rates, always look at the three-month LIBOR because that is the rate viewed by central banks to determine what their own cost will be in terms of their reserve target. Three-month rates give central banks operational direction, a rate that suggests confidence or disaster ahead. ...

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