Credit eases slightly on U.K. rescue

Second British bank bailout edges borrowing costs down a bit. Treasury market closed for MLK day.

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By David Goldman, CNNMoney.com staff writer

What should President Obama's first priority be?
  • Finalize a foreclosure plan
  • Work with Congress on economic stimulus
  • Fix the bank bailout program
  • Detail how he will cut the federal budget

NEW YORK (CNNMoney.com) -- Borrowing was slightly less expensive Monday after Britain unveiled a new bank rescue plan aimed at increasing the availability of credit and boosting bank lending.

Under the plan, the British Treasury will set up an insurance program, called the Asset Protection Scheme. The program will attempt to protect banks against further losses and guarantee bank assets backed by mortgages and other loans.

The new plan follows a $63 billion bailout of three major banks in October, coupled with an agreement to backstop bank debt. The United States may also soon unveil a revamped bank rescue plan, according to aides in the incoming presidential administration. President-elect Barack Obama will be sworn into office Tuesday.

Lending rates fell a bit on the news. On Monday, the 3-month Libor rate fell to 1.13% from 1.14% Friday, and the overnight Libor rate held at 0.14%. according to Bloomberg.com.

Libor, the London Interbank Offered Rate, is a daily average of rates 16 different banks charge each other to lend money in London, and it is used to calculate adjustable-rate mortgages. More than $350 billion in assets are tied to Libor.

Two credit market gauges showed confidence was increasing in the credit market.

The so-called "TED" spread, a measure of banks' willingness to lend, narrowed to 1.04 percentage points from 1.05 percentage point Friday.

The lower the TED spread, the more willing investors are to take risks. The rate skyrocketed as the credit crisis took hold in mid-September, but it has fallen since the U.S. government invested trillions of dollars in credit-easing programs in the past several months.

Another market indicator, the Libor-OIS fell to 0.94 percentage points from 0.95 points.

The Libor-OIS spread measures how much cash is available for lending between banks, and is used for determining lending rates. The narrower the spread, the more cash is available for lending.

The Treasury market was closed Monday in observance of Martin Luther King Jr. Day. To top of page

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