Narrowing Libor spread points to credit market thaw

LONDON: The Libor-OIS spread narrowed to a level former Federal Reserve Chairman Alan Greenspan said he regarded as "normal," adding to evidence the freeze in credit markets is thawing.

The spread, which gauges the reluctance among banks to lend, fell 1 basis point to 25 basis points yesterday, the least since Jan 24, 2008. The spread soared to 364 basis points on Oct 10 last year after Lehman Brothers Holdings Inc's collapse in September. Greenspan said in a June 2008 interview he wouldn't consider credit markets back to "normal" until the spread was at 25 basis points.

Financial institutions are becoming less wary of lending after central banks around the world cut interest rates to near zero and offered unlimited funds to unlock credit. US authorities pledged $12.8 trillion in an attempt to revive credit markets and combat a recession that has cost financial companies more than $1.6 trillion in writedowns and losses.