An indicator that last blew up during the GFC is on the move again

The Reserve Bank of Australia (RBA) isn’t overly concerned about a recent spike in short-term US dollar borrowing costs, suggesting it’s not been driven by a perceived deterioration in creditworthiness in the financial system.

It’s not a GFC-type event, in other words.

“The recent spike does not relate to major market stress or concerns about bank credit risk. Indeed, spreads on long-term bank funding and credit-default swaps (CDS) remain very narrow,” it says, pointing to the chart below showing that the widening in the US dollar OIS-Libor spread has not been accompanied by any meaningful lift in the cost to protect against potential default.

Source: RBA

The OIS-Libor spread measures the difference between overnight interest rates and the rate at which bank’s are willing to lend to each other over a three-month, unsecured basis.

The RBA says the recent increase appears to be due to “changes in the demand for and supply of money-market securities”. While it’s not overly concerned by the recent spike, it says the rise in borrowing costs has spilled over to some other markets, including in the United Kingdom and Australia.

There’s more here.