Euribor rates hit new lows as ECB LTRO nears

Wed Feb 22, 2012 5:33am EST

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FRANKFURT, Feb 22 (Reuters) - Euro-priced bank-to-bank
lending rates fell to fresh 13-month lows on Wednesday, weighed
down by expectations that the ECB's injection of 3-year funding
next week will send another huge wave of ultra-cheap liquidity
flooding into the market.	
    Key 3-month bank-to-bank lending rates are closing in on the
ECB's benchmark interest rate of 1 percent in anticipation that
next Wednesday's second tranche of ECB funds will gush another
half a trillion euros into the banking system.	
    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
on Wednesday to 1.021 percent from 1.026 percent, hitting the
lowest level since January last year.	
    Rates in other maturities also dropped. Six-month rates
 fell to 1.315 percent from 1.321 percent, while
1onger-term 12-month rates dropped to 1.648
percent from 1.652 percent.	
    One-week rates, the most heavily influenced by
excess liquidity which currently stands at a massive 456 billion
euros according to Reuters calculations, fell to 0.362 percent
from 0.364 percent. Overnight rates bucked the trend
and inched up to 0.362 percent on Tuesday from 0.360 percent the
previous day.	
    Although they remain well above the low of 0.635 percent
they hit in early 2010, 3-month lending rates have dropped by
almost a third since the ECB announced plans to lend banks
three-year money back in December.	
    In anticipation for next week's ultra-long tender, banks
have more than halved their intake of 1-month loans and instead
increased their appetite for easy-to-juggle weekly funds, taking
166 billion euros on Tuesday, up from 143 billion a week
earlier.	
    Thanks to the first 489 billion euro cash-injection in
December, banks have been able to stabilise their long-term
funding and keep lending to companies and households, ECB
Executive Board member Peter Praet said on Monday.
 	
    The cash is also having a positive impact on both the money
market and euro zone bond markets, such as Spain and Italy.	
    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.	
    Despite the apparent success of the measure, the ECB wants
its second 3-year tender to be the last as central bank sources
say they are worried banks will become too reliant on the funds.
 	
    With high amounts of excess liquidity in the system and the
money market still dysfunctional, 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 beginning of the year and topped the half a
trillion mark again last week at the peak of the ECB monthly
reserves cycle. 	
    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'  	
    1 week       	
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    4 month      	
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    6 month      	
    7 month      	
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    9 month      	
    10 month    	
    11 month    	
    1 year       	
	
 (Reporting Frankfurt newsroom)
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