Today, as @Conorsen tweeted out, the "benchmark" LIBOR hit a new cycle high with the 12 month rate (#GIK) offered at 1.37%. (Long time delusional readers know this means we put the equilibrium FF rate at .77, thus CB policy has been quite accommodative of late) The 10 year government bond is yielding 1.57 but was at 1.37% as recently as July 5 ! Any casual observer of Dodd-Frank and its morphings understands the regulatory aspect of wider interbank sets. Many of us began to estimate where the "Financial System 2.0" spreads should be as long as 7 years ago.
The WSJ has several articles highlighting the interest "savings" of low (Negative - hello Spanish 2 year auction) rates on borrowing governments. At the height of the "Debt Crisis" debate and populist fear mongering, we argued that just changing the trend and letting the economy grow was more than adequate policy. Even marginal growth rates have delivered adjustments large enough to bring more pundits to our "Issue more for longer" camp.
The critical distinction is the difference between money and debt, even as quantitative policies seek to blur and merge (blurge?) the two. The dollar's waxing and waning becomes a Dramamine ingesting barometer for clues to what lies down the road. Currencies, especially global fiat currencies, are poor compasses to steer policy by, however. Which takes us back to interbank benchmarks. In a world of Central Banks exotically bolstering government borrowings with Flying Buttress purchases, the risk-free rate becomes irrelevant. "Things" other than risk-free are better reflections of financial system vitals. Here's the message, their yields are going UP.