LONDON, Jan 17 (IFR) - Short-end interest rate expectations spiked sharply higher on Thursday morning with front June Euribor - the most liquid futures contract - falling by 7bp to 99.66.
The reason behind the capitulation stems from concerns over the return of a large chunk of LTRO funds at the end of the month, allied to market rumours that the ECB is considering new rules that would require banks to provide more information about loans used as collateral for LTRO borrowing.
Large stop loss orders were triggered below 99.69, a level last seen back in August 2012. The move has been matched further down the curve. The Red June contact, which indicates market expectations of three-month Euribor in June 2014, is 10bp lower at 99.45.
That stop activity in the Euribor strip was triggered by a very strong bid in EONIA, allied to the liquidation of cross-currency longs versus eurodollars.
That is having a knock-on effect on Schatz futures, which are 10 ticks lower at 110.41, taking underlying Schatz yields to 0.17%, the highest level since June last year. (Writing by Alex Chambers, reporting by Michael Cartine and Adam Parry; editing by Julian Baker)