‘M5’ Money Markets (1 Month LIBOR)
Chart-01 displays 1-Month LIBOR rates for the five countries and the equal-weight M5 basket (composite), rebased to 18 months ago. While rates in Switzerland, Japan, and Europe (€uro-Zone) have been negative for some time, their counterparts in the USA, and in Great Britain are now rapidly approaching levels close to zero. The chart illustrates well, how different the interest rate environment in the US has been recently, compared to other major currencies and how rapidly rates globally are now converging. The equal weight average of the five rates is now negative for the first time.
Chart-02 calculates annualised returns from perpetually renewing investments at the prevailing rate, but does so over a longer time horizon than shown in Exhibit-01 before. It emphasises the differences in rates that have existed in the recent past, with returns on US money market investments 3x as high as in Great Britain, the country with the second highest rates in this basket.
Chart-03 goes further back in history, plotting 1-Month LIBOR rates ten years back. The data is smoothed.
Table-01 gives the value of LIBOR return indices (all have a base value of 100 on 31.12.1999) at fixed dates: ten, five, and three years ago, as well as 12 months back, and most recent year end, and month. The lower part of the table calculates rates of return for the corresponding periods. For each period, the best (green) and worst (red) returning market are highlighted.
Chart-04 calculates annualised rates of return from 31.12.1999. Here, 1-Month LIBOR rates in Great Britain hold first place, followed by the US and Europe. Returns in Switzerland and Japan, two countries generally typified by low rates, are rapidly approaching zero, even over such a long-term comparison.