LONDON—Six month LIBOR rates have hit the bottom of a trough for the second time during the past 24 months, as of December 2010.
Six-month LIBOR has settled at approximately 0.45%, a slightly higher level than the previous bottom of approximately 0.39% in early 2010.
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If LIBOR reacts the way in 2011 the way it did in 2010, LIBOR-based loans could see interest rates creep higher. It will take a big swing in LIBOR, say 500 basis points, to push rates rapidly up or down, Gatehouse Capital CEO Marty Collins said during a discussion about real estate transactions.
During 2010, six-month LIBOR moved higher by 591 basis points, when tracked on a monthly basis.
Still, LIBOR remains very low, especially when considering the rate was as high as 5.4% in 2006 and was sitting at approximately 1.8% in March 2009.
“If LIBOR goes up a lot it could increase the cost of borrowing and it will stall the recovery,” Collins said.
Interest rate hedge/RevPAR relationship
As part of an investors' presentation earlier this month, executives at Ashford Hospitality Trust drew a comparison between its interest rate hedge income and revenue per available room.
The real estate investment trust noted its interest rate hedge income increased to more than US$15 million during the third quarter of 2010 from approximately US$10 million during the first quarter of 2009.
“LIBOR and hotel RevPAR are highly correlated,” the real estate investment trust said.