GE Commercial Finance

Current Dynamics
U.S. swap rates are lower so far in July after increasing in June.  Rate movement was choppy last month as the focus shifted between diminished near-term inflation concerns, the Fed's commitment to accommodative monetary policy, surging government debt supply and less weakness in much of the unfolding U.S. economic data.                                                                                           
  • As of July 3, three-month U.S. Libor was at a record low 0.55875%.  According to the futures market, three-month Libor is expected to rise to 1.35% by mid-2010.  Since the FOMC announced its program to buy U.S. Treasury securities on March 18, three-month Libor has declined 73 bps.  One and three-month Libor are 429 and 426 bps lower than their October 10 '08 respective peak following unprecedented government participation in the banking system. 
  • On June 24, the FOMC said it "will employ all available tools to promote economic recovery and to preserve price stability."  The Committee reiterated "substantial resource slack is likely to dampen cost pressures" and it "expects that inflation will remain subdued for some time."
  • Recent U.S. data releases showed that in June, more jobs were lost, the unemployment rate increased to a 26 year high of 9.5% and the Conference Board's measure of consumer confidence fell after having climbed for 3 months.  In May, retail sales increased, the CPI rose only minimally, capacity utilization fell to its lowest level since records began, new home sales were about flat and existing home sales increased slightly.  
  • U.S. Treasury debt issuance is increasing substantially.  Fiscal 2009, which will end September 30, is expected to have a record federal Budget deficit and require record U.S. Treasury debt issuance.  In May, the Office of Management and Budget projected a fiscal 2009 U.S. budget deficit of $1.84 trillion (13% of U.S. GDP), a level last seen at the end of World War II. 
Fed Policy - April 16
U.S. monetary policy continues to evolve beyond its traditional function given the magnitude and complexity of the financial crisis.  According to the futures market, the target fed funds rate is expected to remain below 1% through mid-2010. 
U.S. Forecast - January 22
Consensus forecasts anticipate U.S. economic growth declining further in the first half of 2009 before slowly recovering later in the year.  
LIBOR's Path - October 9
After the September 15 failure of Lehman Brothers, U.S. Libor surged amid unprecedented pressures in the interbank market.  In October, the Federal Reserve and foreign central banks significantly increased efforts to reduce the system stresses that contributed to Libor's increase.