* Take up of 7-day ECB funding announced at around 1000 GMT
* Markets on lookout for signs of restocking after LTRO
* Three-month funding to be also offered on Wednesday
By Marc Jones
LONDON, Jan 29 Money markets are preparing for a
lively couple of days as banks get two chances to replace the
three-year ECB crisis loans they will repay this week with
alternative shorter-term funding.
On Wednesday banks will return 137.2 billion euros - just
over a quarter - of the 489 billion euros they borrowed in the
first of the ECB's twin three-year loan offerings just over a
When the ECB announced the larger-than-expected amount on
Friday, wholesale bank funding prices
jumped as markets realised it removed a thick slice of the 600
billion euros of so-called 'excess liquidity' which has kept
rates pinned to the floor for over a year.
That money can potentially be re-borrowed, however. Later on
Tuesday banks get their usual weekly opportunity to order
seven-day ECB funding and on Wednesday there is a monthly
offering of three-month loans. They will receive the money on
Wednesday and Thursday.
A major take-up in either of the tenders would reduce the
impact of the three-year loan payback and send market rates back
But the latest Reuters poll suggests there will be no major
restocking. Banks are expected to take just 14 billion euros
more combined than they did in the two equivalent operations a
week and three months ago.
If correct, it means once dust of the three-year loan
repayment settles the overall amount of cash in the banking
system would have been cut by around 120 billion euros.
Traders think that market rates could give back some of
their recent gains once it is all out of the way, but not much.
Benchmark three-month Euribor rates hit their
highest level in four months on Monday while one-year eonia
rates are at their highest since mid-June.
"I would expect a little bit bigger amount in the one-week
and the three-month tender but not that big. Maybe after
everything there would be an overall reduction of around 100
billion euros," said one euro zone-based trader who requested
"I would think 12- and 6- month eonia perhaps would come
back down a little bit and then we will see where we go from
there," he added.
(Reporting by Marc Jones; editing by Stephen Nisbet)