Amid Rush to Safety, Another Interest-Rate Low

Global markets witnessed another milestone for interest rates Monday: A key short-term rate in Europe fell to its lowest level in at least 20 years as the U.S.-led attacks in Afghanistan boosted demand for the safety of high-quality, short-term securities.

The three-month U.S. dollar London interbank offered rate, a global rate benchmark also known as the Libor, eased from 2.48% Friday to 2.44% Monday, the lowest level since the British Bankers’ Assn. began setting the figure in the mid-1980s.

Trading in money market securities and Treasury bonds was closed in the United States on Monday for the Columbus Day holiday, but trading was open in Europe and Asia.

Top-rated companies worldwide should benefit from the continuing slide in the Libor because short-term loans and commercial paper that companies use for financing often are priced based on the Libor.

The decline in that rate reflects investors’ hunger for safe short-term securities in the aftermath of the Sept. 11 terrorist attacks on New York and the Pentagon.

Sunday’s U.S. strikes in retaliation spurred more demand for high-quality securities, traders said.

Typically, during times of economic or political turmoil investors look for places to protect their money, and that usually means securities that can be easily converted to cash, such as Treasury bills or money market debt tied to the Libor.

“Investors want U.S. dollar-based investments” as a secure place to put their money, said Maria Fiorini Ramirez, president of MFR Inc., a research firm.

The Libor also is being pushed down in anticipation that the Federal Reserve will cut its key short-term rate again before the end of the year. That rate, the so-called federal funds rate, was cut by the Fed to a 40-year low of 2.5% on Oct. 2. It was the ninth cut this year.

“The Fed will continue cutting interest rates” to help the economy, predicted Guillaume Salomon, a bond analyst at UBS Warburg.

The Fed’s rate-cutting campaign already has cut U.S. money market mutual fund yields to record lows. Those funds were created in the early 1970s. The average seven-day simple yield on taxable money funds was 2.70% last week, according to IMoneyNet.com.