LIBOR

Categories: Bonds, International

London Interbank Borrowing. LIBOR is the "best" interest rate in Britain. It's the interest rate that the safest customers get when they borrow money from British banks. And the rest of the world's banks peg their rates (with lube) after the Brits' LIBOR rates.

And no, it’s not the result of a lion mating with a bore. Or any other semi-rodenty thing. Write this down: LIBOR stands for

London

Inter

Bank

Offering

Rate

It is basically just the British “Fed” rate, reflecting the absolute lowest interest rate at which the British banking system will loan money to its best, most well-heeled customers. Like Sainsbury’s, BP, Barclays, and the guy who plans Royal weddings. So LIBOR is the best or cheapest rate at which the British banking system will lend money.

Most loans come at some premium to LIBOR - i.e. riskier loans might come at something like LIBOR plus 50 basis points or something like that. So that if LIBOR is currently quoted at 2.25 percent, then the LIBOR plus 50 loan is loaned out at 2.75 percent.

And that’s basically it. No need for any wild animals to get...wild.

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