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Comparing loan interest rates and secondary market rates

Ken Hartzfeld and Brian Legarth

This graph examines the interest rate on large loans from the London [Bank] interbank market over a monthly basis. Generally, higher interest rates indicate that the economy is stable enough to handle them. Looking at the graph you can recognize that interest rates haven't been above 2% since the Great Recession, and in the last data collection, they have broken the 2% barrier. This is indicating that the global economy is strong.

A secondary market is where individuals buy and sell securities that they own. Most common secondary markets are the NYSE or NASDAQ. The Secondary market rate measures the price of stocks being exchanged. The Secondary market rate in this graph has also increased above the 2% mark for the first time since the Great Recession, which indicates that people are spending more and with more trust in a stable economy.

These two graphs both show rates at which financial transactions take place. LIBOR [The London Bank] measures interest rates while the secondary market rate measures stock exchange prices. Both are strong indicators of an economy's stability and growth potential. These two graphs are showing strong signals of a growing economy both domestically and internationally. If I were the hypothesize, the graphs will continue to rise, but if they get too high it is grounds for concern as they could crash again as they did in the Great Recession.

13 thoughts on “Comparing loan interest rates and secondary market rates

  1. Lauren Fredericks

    It's interesting to see how long it took following the Great Recession for interest rates to rise again. It makes sense that the FED is hesitant following such economic turmoil. I remember looking at graphs that view the US economy following recessions since the 1950's to present, and each "bounce back" from a recession takes longer and longer for the economy to recover (including interest rates). I wonder if it is the same with the London Bank. Regardless, I think it would be interesting to look at these trends.

  2. spencerc20

    It's good to see that these markets are slowing starting to bounce back following the Great Recession. Hopefully this trend will continue, but it shows that it's important for the banks and consumers to be watching interest rates to see what will be worthwhile to do both when interest rates are extremely low and when they seem to be getting too high.

  3. warej20

    It was neat to observe the slow recovery of both the U.S and international economies following the Great Recession. It makes sense that initially citizens would be hesitant to trust economic markets following events like the crash of the housing market. High interest rates and higher stock prices do indicate growing confidence in the economy and I agree in that I believe they will continue to rise.

  4. the prof

    LIBOR is an interest rate on "offshore" US dollar loans between international banks in London. Two digressions, then substance. (1) The offshore market originally developed because of US threats to seize assets (think the USSR under Brezhnev and China under Mao) meant that some countries that took part in international trade didn't want to put their proceeds in banks in the US. With the First Oil Crisis many OPEC members kept their money there, too – wisely, in the case of Iran, as the US did freeze assets. This rate tracks the comparable maturing Treasury rates closely, but can diverge in times of political and economic upheaval. (2) This past decade the banks engaged in a price rigging cartel, and were busted for antitrust violations. Big fines paid to the UK government, but I didn't follow the details, I don't know if there were any criminal convictions.

    Now the economics. At least before the cartel was discovered, the assumption was that this better indicated supply and demand for short-term funds (1-, 3- and 6-month loans) than in the US, because it wasn't as directly linked to US monetary policy. But as the graph below shows, it's really only in unusual times that the two diverge. Second, we should remember it is a NOMINAL interest rate. What is the "real" interest rate, corrected for inflation in the US? Third, there are LIBOR rates for the British pound, the Euro, the Japanese yen and the Swiss franc, and for an array of "minor" currencies. An interesting question is how those move / diverge from one another. Is there today a "global" interest rate regime?

    https://fred.stlouisfed.org/graph/?g=j8rf

  5. moraifa19

    It is both exciting and eery that our markets are finally at places they were prior to the Great Recession. Booms and busts in the business cycle are so typical they can be expected, so should we be more nervous now than ever that we are on our way to the next Great Recession or do we have reason to believe this growth is here to stay?

  6. bearupk20

    It's exciting to see that interest rates and secondary market rates are on the rise, and that can be a strong indication of the direction the global economy is heading in. After reading this blog post, I realize the importance of consumers and banks paying attention to these rates to make decisions which would affect them in the future

  7. myerse20

    What made you choose the London Bank? Do other national banks reflect the same trends, or is this unique to England? I'd be curious to see how the interest rates of large loans in other countries compare to one another, as well as overtime.

  8. johnsonjm20

    This is a cool post and I especially like the upward trend of the economy:) Hopefully economists and politicians will be alert to any trouble In the economy because the great recession was devastating and personally I don't was to deal with a crisis like that.

  9. laytonr20

    One interesting thing I wonder about is what the spike in interest rates in both sets of date during the middle of the Great Recession. I image it was a response to some policy change, but having been too young at the time and not looked into it yet, I wonder what caused them to spike so high initially, and then immediately bottom out again. It seems like an attempted solution that failed at first glance, but I don't know.

  10. alisonw20

    These graphs clearly depict that the global economy is finally getting back on its feet after the Great Recession. It is very interesting how you can look at a graph and can discern that people are beginning to trust the economy and have more faith that they will benefit from investments. It will be intriguing to follow whether these rates continue to rise as time goes on.

  11. Chris Surran

    These graphs are interesting because they provide a clear indication that the economy is slowly recovering from the Great Recession. I also agree with your assessment that the graphs will continue to rise and that it might become a cause for concern if they rise to high. If interest rates become to high it is likely that residential investment will begin to fall, as the two variables are inversely related. This could have a harmful impact on our economy.

  12. hallk20

    Its amazing to see the dramatic spike in interest rates during the Great Recession. As we've learned, the economy is meant to be slow and steady. But, those graphs seem fairly sporadic in the their rates. As we were very young during the recession, we likely had no idea what was going on with rates such as these, so it is really interesting to look back now at how the economy was impacted.

  13. Katie Paton

    It is very exciting that both the LIBOR and secondary market have both increased above the 2% mark. I wonder if the current cabinet will implement government programs to try to keep upward growth. I am interested to see if there is any correlation between how much the rates raise and how bad the following recession will be when the economy hits a trough.

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