kaput or kaputt
kuh-PUT, -POOT,
kah-)
Broken; ruined;
finished.
From German kaputt
(broken, ruined),
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TIP OF THE WEEK
TIP OF THE WEEK
LIBOR is
kaput.
Libor, the nearly
50-year-old global borrowing benchmark that became a byword for corruption, is
headed for the trash heap of history.
The U.K. Financial
Conduct Authority will phase out the key interest-rate indicator by the end of
2021 after it became clear there wasn’t enough meaningful data to sustain the
benchmark that underpins more than $350 trillion in securities. The benchmark
was set up by the British Bankers Association in 1986 as a way to price
syndicated loans and interest-rate swaps, but its use soon ballooned. Submitted
by a panel of lenders each morning, Libor is the average rate a group of 20
banks estimate they’d be able to borrow funds from each other in five different
currencies across seven time periods.
__________________________________________
Indices:
PRIME
RATE= 4.25%
SBA
LIBOR Base Rate August 2017 =4.23%
SBA
Fixed Base Rate August 2017 = 6.39%
________________________________________
SBA
504 Loan Debenture Rate for August
The
debenture rate is only 2.75% but note rate is 2.797% and the effective yield is
4.537%.
________________________________________________
AHEAD OF THE YIELD CURVE
AHEAD OF THE YIELD CURVE
Is the Phillip’s
curve kaput?
Recently released
minutes from the last Federal Reserve meeting on monetary policy showed central
bank officials saw some likelihood that inflation might remain below 2 percent
for longer than they expected. That explains the change in their policy
statement wording saying inflation was "running below 2%" instead of "running
somewhat below 2%."
This lack of
inflationary expectations is enervating the cerebration on the Phillips Curve to
the point it might be considered pabulum.
The Phillips
curve, an economic concept named for the late economist A.W. Phillips, states
that as unemployment falls inflation will ultimately rise as workers see wage
increases. Fed officials have justified its recent tightening stance on the
Phillips curve. But inflation is falling below the Fed’s 2% target range
despite unemployment falling.
The second half of
the year opened on a strong note as nonfarm payrolls rose 209,000 in July. Keep
your eyes and ears open for this Friday’s report on jobs for the month of
August.
The momentum
should continue as data showed second-quarter gross domestic product grew at a
2.6% annual pace more than double the revised 1.2% pace seen in the first
quarter. Yet despite that, signals of inflation rearing its ugly head are
quiescent. One of the Fed’s leading indicators on inflation is capacity
utilization. Several analysts have pointed to
a rate between 81% and 82% as a tipping point over which inflation is spurred.
Capacity utilization was unchanged in July at 76.7 percent
The
30 year Treasury bond which is very sensitive to inflation saw strong demand at
its last auction. The 2.818 percent high yield for the $15 billion issue was
11.8 basis points below the rate awarded the month before and 35.2 basis points
below the March rate - the highest yield since September
2014.
So
where are interest rates headed?
Eurodollar futures
settle at a three- month lending rate that has averaged about 22 basis points
more than the Fed's target over the past 10
years.
Here is a summary
of what the market expects for Eurodollar futures based upon the pit-traded
prices at the Chicago Mercantile
Exchange:
DEC17-
1.43
DEC18-
1.66
DEC19-
1.84
DEC20-2.01
DEC22-
2.36
DEC23-
2.51
What does all this
mean?
I don’t
know.
Eurodollar futures
imply a quiescent Federal Reserve will estivate.
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OFF BASE
OFF BASE
A
lot of people think summer is kaput once Labor Day rolls
around.
According to the
Federal Reserve, here are our remaining holidays for
2017:
Labor
Day September 4
Columbus
Day October 9
Veterans
Day November 11
Thanksgiving
Day November 23
Christmas
Day December 25
