Derivatives Show Money-Market Stress Rising With Spanish Yields

Forward markets signaled increased stress in the money markets as traders raise bets for the gap between the London interbank offered rate and federal funds as Spain’s bond yields rose to a euro-era record after the country’s credit rating was cut to one level above junk.

Predictions in the forward market for Libor-OIS, a gauge of banks’ reluctance to lend, rose to 36 basis points from 34.9 basis points yesterday, according to the second rolling three month so-called FRA/OIS spread.