May 25 (Bloomberg) -- The U.S. options market benchmark known as the VIX climbed above 40 as borrowing costs rose, boosting speculation that banks’ reluctance to lend will curb economic growth, and tensions mounted on the Korean peninsula.
The Chicago Board Options Exchange Volatility Index rallied 5.7 percent to 40.50 at 11:37 a.m. in New York. The gauge has surged 84 percent in May, which would be the biggest monthly increase since Lehman Brothers Holdings Inc.’s collapse roiled markets in September 2008. It has closed at 40 or above 3.1 percent of the time since 1990. The VStoxx Index, which measures the cost of protecting against losses in the Euro Stoxx 50 Index, climbed 6 percent to 45.18.
Investors fled all but the safest assets and snapped up options as insurance against losses in equity markets after the rate known as Libor that banks say they pay for three-month loans in dollars increased to 0.536 percent, the highest since July 7 and the 11th straight gain. Also, four Spanish banks said they will combine, boosting concern about the European nation’s financial system.
“People are panicked and we’re seeing more interest in downside protection,” said Rebecca Cheong, an equity derivatives strategist at Societe Generale SA in New York. “The concern is that we don’t know what’s the end of the problems in Europe and their ripple effects to the financial market.”
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