Conditions in global money markets continued to ease last week although one could be excused for thinking the picture was not quite so clear here in Australia, but then it often depends on what measures one chooses to focus on. The cost of short-term, US dollar funding eased substantially with three-month Libor falling by 87 basis points to 3.52 per cent, the lowest level in a month. Similarly the TED spread, the spread between three-month Libor and US Treasury bills, narrowed by as much as 102 bps to 256 bps, again the narrowest spread in a month.  While three-month Australian dollar Libor fell by 49 bps to 6.60 per cent, the lowest yield in more than 14 months, the 90 day bank bill rate increased by 23 bps from the end of the previous week to 5.89 per cent. The spread to the overnight interest rate swap also widened by 9 bps to 84.5 bps, although it did narrow to 60 bps at the start of the week.The relative under performance of the bank bill rate may be due to the distortions now appearing in the domestic money market due to the Australian government's guarantee of bank deposits - investor demand for bank bills is said to be waning. On the other hand, the RBA effectively removed around $5.0 billion from the system last week as exchange settlement account balances fell from a new record high, on Monday, of $11.2 billion to $6.1 billion. Also on a positive note, the bank bill futures are pointing to a 90 day rate of 4.9 per cent come December, when a cash rate of 5 per cent is tipped.