It's Baaack

3-month Libor fell for the 10th straight this morning despite deteriorating market conditions that sent S&P 500 futures plummeting. That's not a signal that equity investors were overreacting, but likely due to the fact that the British Banker's Association asks that Libor panel banks get in their quotes by 6:10 a.m., a little before S&P futures trading was halted. It could also be that all on the banks on the panel have the backing of the U.K. goverment in form or another.

Let's also look at New York Funding Rate put out by ICAP, which polls banks later in the morning. Unlike Libor, 3-month NYFR rose to 3.75 percent from 3.65 percent on Thursday, ending an eight-day decline. The following chart shows the Libor-OIS spread and the NYFR-OIS spread since September. They track each other fairly closely and both have turned upwards over the last two days as 3-month Overnight Index Swap rates have fallen.

Meanwhile, Reuters points to and explains some continued discrepancies with Libor:

A glance at the British Bankers' Association's daily London interbank offered rates ((Libor)) fixings show that discrepancies still remain.

Friday's sterling Libor fix showed that HSBC reckoned it could access three-month interbank funds at 5.75 percent, below Royal Bank of Scotland's 6.05 percent.

Yet RBS could be up to 60 percent owned by the UK taxpayer after the government plows up to 20 billion pounds of its overall recapitalisation programme into the bank.

Other UK banks Lloyds , Barclays Plc  and HBOS  also posted lower Libor rates than RBS.

While any debt issued with a government guarantee will be rated in line the guarantor's rating -- for example Barclay's 3 billion euro UK government guaranteed bond carried a triple-A rating -- bank ratings themselves may still be cut. Credit ratings agencies Standard & Poor's and Fitch have both cut RBS's credit rating recently, and in the case of Fitch even after the government took a controlling stake in the bank.