Money, Finance and Banking | Financial news

Money markets euribor rates rise as fed ready to reduce stimulus

* Euribor rates hit multi-month highs on Fed comments* Euribor futures slump as part of broader sell-off* Rise in money market rates may make ECB more dovish-analystBy Ana Nicolaci da CostaLONDON, June 20 Euribor futures slumped on Thursday after the U.S. Federal Reserve signalled it was ready to reduce bond purchases if its economic forecasts are met, pushing bank-to-bank lending rates to multi-month highs. Fed Chairman Ben Bernanke said on Wednesday the U.S. economy is expanding strongly enough for the monetary authority to begin slowing the pace of its bond-buying stimulus later this year, confirming investor fears that central bank liquidity would not remain abundant in future.

"It's a spill-over effect from the Fed decision, increasing the notion that central banks are slowly pulling back liquidity from markets," Benjamin Schroeder, strategist at Commerzbank said. Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, rose across maturities. The one-month Euribor rate hit its highest since August 2012 at 0.125 percent, up from 0.123 percent the day prior.

The three-month Euribor rate rose to 0.214 percent - its highest level since late March - from 0.212 percent. This rise in money market rates could make things more tricky for officials in the euro zone, where many economies are still struggling with recession and high unemployment rates, analysts said.

"Seeing that rates are on the rise and seeing that they have some tightening through rising money market rates, I think (the ECB) will have to steer against this by perhaps employing more dovish tones," Schroeder added. The European Central Bank left interest rates unchanged earlier this month and said at the time that while it had discussed a raft of other policy options, including negative deposit rates, they would remain "on the shelf" for now. But the ECB has also maintained it is ready to act to aid the euro zone economy if needed, and this will leave markets particularly sensitive to data releases. Business surveys on Thursday showed the euro zone's private sector slump eased more than expected this month. Euribor futures dipped across the 2013-2018 strip, falling by double-digits further out the curve. While the March 2014 contract was 6.5 basis points lower at 99.585, Euribor futures were down by more than 20 basis points from the September 2015 contract onwards."Everything is selling off in this generalized... liquidity risk-off move," Richard McGuire, senior fixed income strategist at Rabobank said.

Money markets euribor rates sink further after flood of ecb cash

* 3-mth Euribor rates fall to lowest since Sept 2010* ECB overnight deposits hit record high at 827.5 bln euros* ECB interest rates seen remaining at 1 pctBy Ana Nicolaci da CostaLONDON, March 6 Bank-to-bank Euribor lending rates fell to their lowest since September 2010, sinking deeper after the European Central Bank poured in a second round of cheap cash last week to buoy the banking system. Analysts expect Euribor rates to keep falling after the ECB injected another 530 billion euros of cheap funding last week, in addition to the 489 billion euros that banks took up in December. Three-month Euribor rates fell to 0.920 percent from 0.934 percent, sinking to their lowest since late September 2010. One trader said the rate of the decline had accelerated after it broke through the 1 percent level in late February."Once it went through 1 percent, which is the refi rate, it seemed to gain a little bit of momentum to the downside and in doing so it has given a little bit more wind and oomph to the price action in the front end of the Euribor strip futures," said a trader.

"The refi rate at 1 percent looks like it is cast in stone," he said. The huge cash boost for euro zone banks was a factor behind economists' decision to reverse their forecasts for interest rate cuts this year in a Reuters poll published last week. The ECB is now expected to keep rates on hold at 1.0 percent until deep into 2013, the poll showed. As long as the ECB maintains its 150 bps corridor, the difference between the deposit and the marginal lending rate, Eonia forwards indicate the refi rate will remain unchanged at 1 pct until year-end, said Don Smith, economist at ICAP. The three-year cash injection from the ECB has pushed excess liquidity in the money market to a record 813 billion euros according to Reuters calculations, smashing the previous record of 535 billion euros set earlier this year.

Having soaked up the three-year funds, banks are now reducing their intake of short-term money. They took just 17.5 billion euros in the ECB's weekly main refinancing operation - the lowest amount since November 2001. HOARDING CASH There are growing concerns that banks continue reluctant to lend to each other despite the excess cash in the financial system and that the extra liquidity will not filter through into the real economy.

Banks deposited a hefty 827.5 billion euros at the ECB's deposit facility overnight up from 820.8 billion euros the day prior. A Reuters poll of traders predicted that the broader euro zone economy would only get limited benefit from the ECB's funding bonanza because banks were hoarding the money rather than lending it on to businesses and consumers. ECB President Mario Draghi recently urged banks to help strengthen economic growth by lending the money they borrow from the central bank at very low rates to euro zone households and businesses."It's possibly a sign that banks are hoarding cash for a rainy day," the trader said. "I think the market is now addicted to easy cash and I think we are in a very difficult position weaning banks off this life-support machine."

Money markets euro interbank rate fall stalls after ecb

* Forward euro overnight rates rise further after ECB* Traders scale back bets on negative ECB deposit rate* Interbank rates could resume fallBy Emelia Sithole-Matarise and Sakari SuoninenLONDON/FRANKFURT, Aug 3 The euro zone's key bank-to-bank lending rate held at an all-time low on Friday, with further falls capped after the head of the European Central Bank' raised doubts about the prospect of pushing the deposit rate into negative territory. ECB President Mario Draghi's comments on Thursday increased expectations the bank could cut the main refinancing rate below the current record low of 0.75 percent, but, at the same time tempered bets on the central bank starting to charge banks for depositing funds with the ECB overnight. Forward euro overnight Eonia rates, the best gauge for money market expectations of future moves in the ECB's deposit facility rate, whch the bank cut to zero last month, rose for a second day after Draghi's remarks, showing traders were scaling back bets on a move into negative territory. Draghi said on Thursday that negative rates represented "uncharted waters".

The forward Eonia rate for September, when the ECB holds its next policy meeting, traded around 8 basis points, compared with 5 bps late on Thursday, implying an unwinding of bets on a cut in the deposit rate. The rest of the 2012-2013 strip was also higher."I'm not sure they want to drop the depo rate into negative territory so I attach a very low probability of them doing so after the sell-off we've seen in Eonia forwards for the next ECB meeting," said Barclays Capital strategist Giuseppe Maraffino. The ECB's overnight deposit rate, which it cut to zero on July 5, acts as a floor for money market rates as banks only lend to their rivals if they can earn a better rate of interest than at the central bank. The ECB hopes its unprecedented move will nurture a return of more significant interbank lending by forcing banks to look for more profitable options but so far the jury is out on the success of the measures.

Three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, remained at 0.375 percent. However, three-month Euribor futures implied a further fall in the fixing of the interbank rate to 0.33 percent. Maraffino said he expected Euribor to fix as low as 0.30 percent as the market anticipates a cut in the ECB's refinancing rate next month to a record low of 0.50 percent and a deposit rate at zero. FLAT-LINING EONIA

Other interbank rates rose slightly. Six-month Euribor rates ticked up to 0.659 percent from 0.657 percent and one-week rates increased to 0.097 percent from 0.096 percent while overnight rates eased to 0.109 percent from 0.112 percent. Commerzbank strategists saw limited scope for further falls in overnight Eonia fixings even if the ECB deposit rate went negative."As witnessed in repo and T-bills markets, the decline (in rates) has slowed when approaching zero and spreads have narrowed," Commerzbank strategist Benjamin Schroder said in a note."There could also be technical issues which slow the implementation of negative rates or trades within banking alliances might stop just short of trading at negative rates internally. The latter are already now adding an upside bias to Eonia fixings,"The ECB's move to stop paying interest on banks' deposits saw almost half a trillion euros transferred from the facility to its bank's current account. But with the monthly reserves cycle nearing its end and fewer options available for banks to juggle their funding, the outflow has slowed. A total of 324 billion euros was parked in the ECB's deposit facility overnight. Banks' current account deposits at the ECB rose to 530 billion euros.

Money markets positioning for more ecb easing, but not in may

* ECB seen on hold in May, but may ease later* Money market rates falling again across 2012 strip* Curve seen flattening as rates seen low for longerBy Marius ZahariaLONDON, May 2 Short-term euro zone interest rates predict the European Central Bank will keep policy on hold on Thursday, but pricing also implies it could ease monetary policy further in coming months as the region struggles with a painful recession. The recent re-positioning in money markets for further easing comes after a protracted period of little movement. Investors thought at the time that the ECB's injections of about one trillion euros ($1.3 trillion) of cheap loans into the banking system (LTROs) would have a significant impact on the economy and could be the central bank's last moves this year. But weak business surveys and a recent escalation of the sovereign debt crisis have signalled that the impact of the LTROs has faded and more easing may now be necessary.

"Everything is pointing towards the intensification of the contraction again," Rabobank senior market economist Elwin de Groot said. "The market is preparing for the possibility that the ECB might cut rates further down the line.""I don't think it will happen this week. The ECB would be wary of being too responsive to a small set of data."Overnight Eonia rate forwards dated on 2012 ECB meetings have fallen in the past week by around 2-6 basis points to 24-30 bps, while Euribor futures have risen, implying expectations for a further fall in Euribor rates. Longer-dated rates fell more, reflecting expectations any move might occur in the second half of the year.

Max Leung, a rates strategist at BofA Merrill Lynch Global Research, said markets were pricing in a 10-20 percent probability of a 25 bps key rate cut by midsummer and as much as a 40 percent chance of a cut by the end of the year. But he expected markets to soon price in a higher chance."The ECB said its next moves would be data-dependent. If we look at the Purchasing Managers Indexes for the euro zone, they are at levels at which the ECB cut rates back in October last year," Leung said.

"If the ECB cuts (its key refinancing rate from a record low of 1 percent), there is a decent chance that it will cut the deposit rate as well, which means there could be 10-15 basis points more to go in Eonia rates and Euribors."In his post-meeting speech on Thursday, Draghi is widely expected to remain cautious and suggest that the ECB is still in a wait and see stance. Any dovish signal he sends out would accelerate the markets' positioning for more easing. Barclays Capital rate strategist Giuseppe Maraffino said weak data and increased uncertainty about Spain could mean that markets would continue to price in a hefty chance of more easing even if Draghi gave no clues that this was likely. The markets' behaviour goes against the house view that rates will remain at 1 percent until the end of 2015, but Maraffino said it was "premature" at this point to bet against the trend and pay Eonia rates. Markets are not only pricing in a higher probability of a cut, but they are "increasingly embracing" the view that rates will stay low for longer, Societe Generale rate strategists said in a note. Having recommended a bet on a narrowing of the spread between one- and two-year rates a month ago to reflect that view, they are now recommending the same bet moved one year into the future using forward rate products.

Money markets rates seen falling thanks to cash flush banks

* Libor seen falling further after ECB, Bernanke * Some U.S. appetite for longer-dated French bank debt * U.S. interest rate volatility hovers at low levels * Options suggest longer-term concerns about higher rates By Richard Leong NEW YORK, March 2 Short-term borrowing costs for dollars will likely fall further in the coming days as European banks are flush with cash after they aggressively bid for cheap funds from the European Central Bank this week. Federal Reserve Chairman Ben Bernanke's assurance the U.S. central bank will likely cling to its near-zero interest rate policy at least until late 2014 leaves more room for interbank lending rates to fall, analysts said on Friday. Another encouraging development for the dollar funding market was the emergence of investor appetite for unsecured, longer-dated French bank debt, they said. At the end of 2011, most investors shunned French bank debt with the exception of overnight secured loans. French banks have the highest combined exposure to Greece and Italy, two heavily indebted euro zone countries. "There is a lot of money coming from Europe," said Mike Lin, director of U.S. dollar funding at TD Securities in New York. "It's hard to fight the trend right now." And the trend suggests the London interbank offered rate for three-month dollars could decline 0.5 basis point in the coming days, Lin said. On Friday, three-month dollar Libor was fixed at 0.47575 percent, the lowest since mid-November. Nearby Eurodollar futures, which gauge expectations on three-month Libor, rose for a fifth straight day. The December 2012 Eurodollar contract touched its highest in about a month on Friday at 99.430. Most stress measures in the dollar funding market will likely ease further since ECB awarded 530 billion euros in three-year loans to 800 banks on Wednesday. The spread between three-month Libor and the three-month Overnight Indexed Swap rate that measures expectations on the Fed's policy rate hovered at 36 basis points, the tightest since early November. The gap between two-year dollar interest rate swaps and two-year Treasury note yields shrank to 25 basis points late Friday, the narrowest since mid-August, according to Tradeweb. Since December, ECB's two three-year Long Term Refinancing Operations (LTROs) injected more than a trillion euros into the banking system. While these ECB loans are denominated in euros, this hefty cash infusion lessens the urgency for banks to raise money in the open market, where investors remain wary about bank exposure from the region's sovereign debt problem. "The LTROs have added a lot of cash there. It means their overall demand for cash is a lot lower," Lin said. In light of the market's protracted low-rate outlook, measures of interest rate volatility hovered near their recent lows. For example, Bank of America Merrill Lynch's MOVE index on dollar interest rate swaption volatility was about 77 basis points on Friday, above its recent low of 70 basis points but far below the 118 basis points set in early August 2011. A low-rate, low-volatility climate enables traders to take more risks and to engage in costly hedging strategies. "They don't have to hedge as much," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee. Even if a trader needs to exit from a position, he can easily find either a buyer or seller, Vogel said. "There is no shortage of cash around." While the ECB and the Fed are committed to keeping rates low and ample cash in the bank system, some traders scaled back their longer-term expectations that U.S. rates would stay low once the central banks begin to withdraw monetary stimulus. In the options market, the ratio on 10-year Treasury puts to 10-year Treasury calls rose above its 10-day moving average on Friday. This suggested more traders are bracing for higher longer-term Treasury yields on perception of a successful LTRO this week, less likelihood of more bond purchases from the Fed and encouraging U.S. economic data, according to Gennadiy Goldberg, fixed income strategist at 4Cast Ltd in New York.

Money markets safe haven t bill flows immune to periphery rally

* ECB bond-buying bets spur demand for peripheral T-bills* Demand for German, other top-rated bills not dropping* German, Dutch, French bill yields to stay around zeroBy Marius ZahariaLONDON, Aug 6 Renewed appetite for Italian and Spanish treasury bills on prospects of the ECB stepping in to buy the two countries' debt is unlikely to divert flows away from safe-haven German and French short-term debt markets. Since European Central Bank President Mario Draghi said on July 26 he would do whatever was necessary to preserve the euro, Italian one-year bill yields have halved to 2.27 percent, while their Spanish equivalents have dropped some 200 basis points to 3.07 percent. Last week, Draghi said the ECB may start buying government debt again if troubled countries activated the euro zone's rescue funds and that any forays would target short-dated paper, further strengthening demand for peripheral T-bills. However, this has not prompted a reversal of safe-haven flows into top-rated, short-dated euro zone debt. Short-term German, Dutch, Finnish and French yields have changed little in the past month, hovering at a few basis points either side of zero, meaning in some cases investors are willing to pay to park their cash with a top-rated country for six months or one year.

France and the Netherlands both sold bills on Monday at negative yields. While the ECB is expected to ease Italian and Spanish access to short-term debt markets, its actions are not seen sufficient to assuage investor concerns about the future of the euro zone."Those investors who are buying German T-bills at negative yields are not the kind of investors that would consider buying Italian and Spanish credit," said Christoph Rieger, rate strategist at Commerzbank."At the end of the day, investors will still be very concerned whether the ECB intervention will actually work. If they will only focus on short-term (debt) it will not solve the funding problems that these countries are facing."

Bond traders say investors buying short-term Italian and Spanish debt are mainly domestic banks or hedge funds -- institutions that have a higher tolerance for the risks associated with such assets. BUYING LOCAL Markets for T-bills, which have a maturity of less than two years, have been increasingly driven by domestic investors in the past year, analysts say.

The dormant state of unsecured interbank lending has boosted banks' demand for short-term debt, which can be used at low cost as collateral in secured lending. The ECB's massive liquidity injections have also helped the bill market. Some banks use bills as collateral to get ECB funds while many lenders are simply parking their ECB cash in the T-bill market until they have to use it to pay back maturing debt. As the cost of using a bill as collateral differs depending on its rating, banks in the euro zone's top-rated countries have preferred to buy domestic bills over higher-yielding peripheral paper. Many risk managers at these banks have placed restrictions on peripheral debt holdings as they try to cut exposure to the bloc's most vulnerable debt markets."We have seen a huge decrease in cross-border lending in the past months. Especially in France, banks are not buying into peripheral markets anymore so they are moving into French T-bills," ING rate strategist Alessandro Giansanti said."Many investors just don't want to invest money in low-rated assets, even if it's T-bills."He said that while demand for Spanish and Italian T-bills was likely to increase in the near-term, the appetite for German and other AAA- or AA-rated debt was likely to remain unchanged. He expected the gap between short-dated Spanish and German debt to fall from roughly 300 bps to 150 or even 100 bps in the next few months, while German yields remain around zero.