Euribor rates fall after ECB urges banks to tap LTRO

FRANKFURT, Feb 10 (Reuters) - Euro priced bank-to-bank
lending rates continued to fall on Friday, a day after European
Central Bank President Mario Draghi urged banks to make use of
the generous long-term liquidity the central bank will offer
later this month.
Having injected almost half a trillion euros into the
banking system with its first 3-year loans in December, which
pushed excess liquidity to record levels, the ECB will give
banks a second chance to grab the ultra-cheap funds on Feb. 29.
With banks already awash with long-term cash and
expectations of the uptake for the next round matching or even
exceeding December's demand, downward pressure on lending rates
in the money market is intense.
Three-month Euribor rates, traditionally the
main gauge of unsecured interbank euro lending and a mix of
interest rate expectations and banks' appetite for lending, fell
to 1.063 percent from 1.070 percent, hitting the lowest level
since late January last year.
Rates in other maturities also dropped. Six-month rates
fell to 1.365 percent from 1.370 percent, while
1onger-term 12-month rates dropped to 1.697
percent from 1.702 percent.
One-week rates, the most heavily influenced by
excess liquidity which now stands at 484 billion euros according
to Reuters calculations, fell to 0.373 percent from 0.375
percent. Overnight rates bucked the trend and inched up
to 0.367 percent from 0.362 percent the previous day.
While it is still not completely clear whether the money
from December's 3-year ECB loan operation is filtering through
to companies and consumers, ECB President Mario Draghi said the
move had avoided "a major, major credit crunch".
The cash is, however, having a clear positive impact on both
the money market and euro zone bond markets. Spain and France
enjoyed a blast of positive investor sentiment on the back of
the money last week with borrowing costs falling for both.
Money market experts also report that some banks are now
prepared to lend to some of their peers for as long as three
months, a marked improvement on last month when even month-long
loans were hard to come by in the open market.
Some market players are also expecting further long-term
loan offerings down the line considering the success of the
measure. Mario Draghi said on Thursday the bank would not
pre-commit on holding additional handouts.
With high amounts of excess liquidity in the system, banks
are depositing much of the extra cash back at the ECB.
Overnight deposits at the ECB hit a record high of 528
billion euros at the peak of the ECB's last reserves period and
currently stand at a hefty 496 billion euros according to
Reuters calculations.
Short-term market rates are well below the bank's main 1
percent policy rate due to the excess cash. Its 0.25 percent
overnight deposit rate is acting as a floor for money markets.

Euribor rates are fixed daily by the Banking Federation of
the European Union (FBE) shortly after 1000 GMT.
* For a table of the latest Euribor fixings for terms of one
week to one year, double click on
* For a table of the previous day's fixings of EONIA swap
rates, which show market expectations for future overnight
lending rates, double click on
* For graphs of historic Euribor and EONIA swap rates, right
click on the links in angle brackets below, and select 'Related
Graph'
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(Reporting by Frankfurt newsroom)