KEY POINTS:
Despite falls on stock markets across Asia - including a 6.8 per cent fall on Japan's Nikkei yesterday - cautious optimism is growing in credit markets as financing costs continue to ease.
Money market rates in Asia fell yesterday after Europe and the US Federal Reserve agreed to provide as much as US$540 billion ($904 billion) in loans to relieve pressure on money-market funds.
Hong Kong's three-month interbank lending rate, or Hibor, fell for a fourth day, tumbling 0.21 of a percentage point to 3.14 per cent, the lowest since September 22.
Singapore's three-month rate interbank for US dollar loans dropped to 3.65 per cent, the lowest in four weeks.
The easing follows several days of good news in Europe. Overnight Tuesday the three-month London interbank rate for US dollar loans, or Libor, slid 23 basis points to 3.83 per cent, the lowest since September 26.
Funding costs in New Zealand and Australia remain tight despite the Reserve Bank of Australia pumping A$2.46 billion ($2.75 billion) into the financial system yesterday.
The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate, a measure of funding availability, rose 1 basis point to 62.5 points yesterday in Sydney.
Things in the US were starting to free up, said AMP Capital Investors head of fixed income Grant Hassell.
"You're seeing the Libor coming down a little bit.
"It's a sign the interbank market over there is starting to function which should, if it continues, give local banks access to those global markets."
Hassell said local banks still appeared to be hoarding cash, indicating the domestic interbank market was still relatively illiquid.
Douglas Hodge, Asia Pacific managing director of huge US fixed interest manager PIMCO, said with a series of concerted measures announced in recent days Governments had now sent a clear message that they were prepared to do what was sufficient to arrest the downward spiral in the global financial system.
"Asset prices will stabilise, risk premiums will begin to return to more normal levels, the systemic risk which is represented in Libor and commercial paper and so forth will begin to correct but it's going to take time.".
Hodge told the Business Herald the markets were taking some comfort from the measures announced but one or two of the more significant initiatives including the US$700 billion Tarp initiative and US Treasury's US$540 billion plan to purchase large amounts of US commercial paper were yet to take effect.
"It's all coming but the restoration of credibility is going to take time and dollars being applied to have full effect."
Interbank rates in Europe and the US have tumbled in the past week after policy makers in Europe and Japan offered lenders unlimited dollar funding.
The European Central Bank and the Bank of England yesterday made available as much US currency as required. The difference between what banks and the US Treasury pay to borrow for three months, the so-called Ted spread, has fallen sharply.
However, money markets remain tight compared with historical averages.
