* Moody's adds to concerns crisis threatening France
* Euro interest rate swap spread at widest since end-2008
* Euro-priced interbank rates rise despite liquidity glut
* French banks' borrowing at ECB tops 100 bln euros
By Emelia Sithole-Matarise
LONDON, Nov 21 Money markets remained
under pressure on Monday, with an emphatic victory for Spanish
conservatives committed to tough austerity doing little to ease
fears the euro zone debt crisis was spinning out of control.
Adding to market fears that Europe's third biggest economy
is being drawn into the debt storm, Moody's warned France that a
sustained rise in its debt yields and weakening economic growth
could be negative for its triple-A credit rating.
French bank shares fell, while French government debt yields
and the cost of insuring its debt against default rose along
with those of Spain and other peripheral euro zone issuers,
spurring flight into the perceived safety of German bonds.
Demand for top-rated German paper was also evident in moves
in general collateral, with the one-year borrowing cost of using
German government debt near lows seen at least in July 2009
around 0.26 percent, according to ICAP data.
This was almost 50 basis points below the ECB's deposit rate
which normally forms a floor for such rates. French one-year
general collateral was around 0.39 percent while that for Italy
was at 1.8 percent.
Short-term euro interest rate swap spreads -- a key measure
of risk aversion -- was at its highest since the 2008 financial
crisis at around 114 bps. The equivalent U.S. swap spread was
also near its highest levels since June 2010 at around 51 bps.
The European Central Bank has been buying bonds in the
secondary market to rein in borrowing costs for struggling
sovereigns but pressure on it to take more sweeping action such
as being the lender of last resort is growing.
It showed no sign of doing so on Monday, however, with data
showing it restricted its purchases of troubled euro zone
government debt to 8 billion euros last week.
Germany opposes full-blown ECB intervention in the crisis,
leaving it at odds with some European partners and Britain.
"Everything is now concentrated on the core. What will
happen to France? ... Would the Germans come round to some
ECB-inspired solution? That is where everyone is looking," said
ICAP analyst Chris Clark.
"The risk-off move is firmly on. In the current environment,
with the massive uncertainty that markets are facing coupled
with the extremely tough trading conditions, that means for most
people to stay flat is an objective."
FRENCH BANKS UP ECB BORROWING
In the unsecured market, euro-priced interbank lending rates
rose, with no new measures to tackle a crisis entering its
third year outweighing the impact of a liquidity glut from the
Data showed France's banks, heavily exposed to the euro
zone's lower-rated government debt, borrowed more than 100
billion euros from the ECB last month, up around 20 billion
euros from the previous month.
Banks are now borrowing just short of 500 billion euros from
the ECB but data show almost two-thirds of that money is being
deposited back at the central bank. That proportion compares
with around one third after Lehman Brothers' collapse back in
The premium for swapping euros into dollars also pushed
higher, with the three-month cross-currency basis swap around
four basis points wider at -139.500 basis points, the most since
the 2008 financial crisis.
Some analysts say the cost of borrowing three-month dollars
in the market is now equal if not slightly more than that of
borrowing from the ECB, which could see a surge in demand at the
central bank's final tender of 84-day dollar funds in December
Interbank lending rates also reflected investor reluctance
to part with cash, with three-month dollar Libor rates marching
higher for a 101th consecutive session, fixing almost a full
basis point up at 0.49500 percent. The rate has
doubled from 0.24 percent in July.
"Libor rates still reflect the credit stress in the banking
system -- above all in Europe," BBVA strategist Pablo Zaragoza
said. "We see limited downside for rates in the short-term, but
further upside could be capped around 0.55-0.60 percent for