* Three-month ECB borrowing rises* Suggests Greek banks extending funding maturityBy Kirsten DonovanLONDON, June 27 An increase in borrowing of three-month funds from the European Central Bank on Thursday points to recapitalised Greek banks shifting back to the ECB for their longer-term funding after being forced to rely on domestic emergency liquidity facilities. Banks borrowed 26.3 billion euros in three-month funds , versus a maturing amount of 18.1 billion euros . That number is not the whole story however, as the maturing operation had originally totalled 25 billion euros but 7 billion euros was repaid in May. Analysts believe this repayment was by Greek banks no longer eligible to take part in ECB tenders. Weekly borrowing also rose at the ECB's regular Tuesday tender, with 180 billion euros taken up compared with 167 billion the previous week and up fourfold in the last month.
"The increase...alongside the recent drop in emergency lending fits with the notion Greek banks who were shut out of the ECB are now returning," said Rabobank rate strategist Richard McGuire."But that does nothing to change the fact that financial institutions in Greece and indeed the wider periphery face ongoing significant restraints, and their sole lifeline is the public sector."Wednesday's three-month tender is the first that some Greek banks have been able to take part in since being recapitalised at the end of May.
The early repayment of more than 30 billion euros of longer-term ECB financing earlier this year - including from the recent three-year funding operations - suggested some banks were no longer eligible to borrow from the central bank. At the same time there was a sharp rise in the use of Emergency Liquidity Assistance (ELA) which analysts said pointed to Greek banks having to change their source of funding after being left undercapitalised in the wake of the country's debt swap. Since the Greek banks have been recapitalised and are again eligible for ECB funding, take-up at the one-week operations has soared.
For example, in the last week of May, banks borrowed 51 billion euros in seven-day funds, which more than doubled to 119 billion in the first week of June, according to ECB data. At the same time, ELA borrowing has decreased by over 60 billion euros during June. The take-up at Wednesday's three-month operation suggests the Greek banks are now replenishing their longer-term ECB borrowing. However, steady usage of the central bank's deposit facility indicates that overall banks are not hoarding more cash."Over the past few weeks we've seen a continual rise in the weekly tender and consistent with this are indications of ELA facility usage declining," said RBS rate strategist Simon Peck."As excess reserves remain fairly stable, it's just a change of funding source rather than an increasing need for cash."
* No clues on ECB interest rate cut from monthly policy meet* ECB President Draghi notes positive impact of ECB loans* Secured lending thaws, unsecured mkt still mostly frozenBy William JamesLONDON, Jan 12 The European Central Bank disappointed traders hoping for fresh clues on the path of interest rates on Thursday, but signs were growing that efforts to free up interbank funding markets were beginning to take hold. The central bank kept interest rates steady at its monthly rate-setting meeting and offered little insight into whether it would consider cutting the refinancing rate from its current record low 1 percent. However, ECB President Mario Draghi pointed to signs that its injection of half a trillion euros into the euro zone banking system in December had helped to avoid a credit crunch, highlighting the reopening of unsecured bond markets. Covered bond issuance in Europe has risen in early 2012 with more than a dozen deals lifting optimism the asset class will help banks meet their record 2012 funding needs.
"There's no doubt (the ECB lending) is helping banks secure much needed funding which, if you go back a few weeks, was an issue," said Lloyds Bank strategist Eric Wand. Booming demand for short-term sovereign treasury bills and sinking money market rates supported the view that there has been some improvement since the ECB lent banks 489 billion euros for an unprecedented three years. Italy became the latest sovereign to benefit from the glut of cash sitting with banks, as the ailing sovereign managed to sell short-term debt worth 8.5 billion euros at half the cost it had to pay in mid-December. This renewed appetite for bills issued by previously shunned euro zone states has helped to drive the cost of raising money with those assets sharply lower, affording banks better access to secured sources of funding.
"If you look at secured lending, our traders say repo markets, particularly for Italian collateral and peripheral collateral, have opened up again and are seeing trades going through in size again, up to three-month terms," said Commerzbank strategist Benjamin Schroeder. Data from electronic trading platform MTS showed the overnight rate for using Italian general collateral to raise money through the repo markets had fallen to 30 basis points, having frequently topped 1 percent in December.
NOT FUNCTIONING Despite signs of improvement in some areas, Draghi still described the interbank funding market as "not functioning". Analysts said the market for unsecured funding, where banks traditionally sourced the majority of their financial needs, remains moribund."Some of the unsecured markets are opening up but I think it's still pretty locked for all but the best names," Lloyds' Wand said. "There's a slight thawing but obviously a long way to go before we get banks happy to lend to one another. The three-month Euribor rate, fixed daily based on contributions from a panel of banks, showed banks believed they could obtain funding at 1.245 percent, extending a continuous daily fall that began on Dec. 21The equivalent Libor rate also fell but analysts said that at this stage, there was little real lending available to banks at that duration and cost."Unsecured lending is difficult to judge. The indication we have is Euribor, and that is pretty much a survey rate with little flows going on," Commerzbank's Schroeder said.
* Euribor rates fall to lowest since Sept 2010* Prevailing risks could slow the pace of decline* Eonia rates have further room to fallBy Ana Nicolaci da CostaLONDON, March 12 Euribor interbank lending rates fell on Monday, under pressure from European Central Bank liquidity in the system, but the pace of decline may slow as economic fundamentals come back into play in influencing the level of short-term interest rates. Three-month Euribor rates fell to their lowest since September 2010 at 0.88 percent, edging closer to a record low of 0.63 percent hit in March of 2010. The excess liquidity in the financial system from 3-year ECB injections totalling 1 trillion euros ($1.3 trillion) could easily take Euribor rates to new record lows this year, said Simon Peck, rate strategist at RBS, but event risks may hinder the pace of decline."In many respects, we are now moving away from liquidity fundamentals ... we have got this very strong link between bank and sovereign risk so I don't think it's a pure liquidity story any more," Peck said. He expected the market to price Euribor rates of below 0.60 percent in the third quarter of this year, but added "we may see some resistance before we get that low."
The ECB's cheap 3-year loans since December have kept short-term interest rates under pressure. But the expectation that this will be the last such cash injection has put the focus back on economic fundamentals, with many saying the ECB's efforts has done little to resolve the region's underlying solvency problems, while its austerity drive could choke much needed growth. Market prices suggested the spread between forward rate agreements and overnight rates - a forward-looking indicator of counterparty risk - would tighten further, implying lower risk. But Peck said he was betting against the pace of the implied tightening, pointing out the various catalysts which could cause funding conditions to deteriorate again, including Greek elections next month."Our 2-year/2-year forward FRA/OIS widener continues to provide attractive risk/reward as a blow-out trade," he said.
Barclays Capital also expects some slowdown in Euribor's declining trend over the next months, given the scale of the recent move and after the ECB cemented expectations it will remain on hold for a while at its monetary policy meeting last week. The ECB kept interest rates at a record low of 1 percent for a third month running, but delivered a surprise warning on inflation."We expect the 3-month fixing to move to the 70 bp (0.7 percent) area by mid-June with the bottom likely at 65 bp (0.65 pct) by mid-summer," Barclays strategists said in a research note.
HOW LOW CAN YOU GO? Overnight Eonia rates traded at 0.36 percent on Friday, up from 0.359 percent in the prior session, but analysts say they too had further to fall even though some saw a floor at 0.25 percent - the level of interest offered at the ECB's overnight deposit facility."A number of small banks are probably still in the market and the fact that they are being charged higher prices creates a distortion in the calculation of Eonia, thus preventing the fixing declining further," the Barclays strategists said."Over time, the abundance of liquidity is likely to push this rate lower eventually."The rate could move to between 0.25 percent and 0.35 percent over the next three to six months, Laurent Fransolet, head of European fixed income strategy at the bank said. RBS's Peck said he saw Eonia rates easing to low-mid 30s over the next several months and remaining there for some time."In my view, there is a considerable probability that the market can move towards pricing in a deposit rate cut, and in this scenario, fixings could fall to 20 bps."The idea is that this would stimulate banks to lend money on rather than depositing cash with the ECB, he added.
LONDON, March 13 Borrowing of overnight funds from the European Central Bank jumped as banks prepared to tender new Greek bonds as collateral at the central bank's refinancing operations after the country's successful debt restructure. Borrowing from the overnight facility rose to 15.6 billion euros from 632 million euros the previous day, ECB data showed on Tuesday, but this was largely expected to fall later in the week as they receive cash from the ECB's seven-day tender. The ECB stopped accepting Greek bonds early last week after the country's debt was pushed into 'selective default' as a result of its debt restructuring but lifted the ban after the deal went through at the end of the week."Newly exchanged Greek bonds were waiting to be submitted into today's ECB Main Refinancing Operation and that cash was being borrowed at the marginal rate until such funds are settled tomorrow," ICAP analyst Chris Clark said."If this is indeed what happened, we should see a similar figure being borrowed tonight before that number returns to normal once MRO funds are settled tomorrow," he said.
Bank demand for the ECB's weekly loans also rose to 42.2 billion euros from 17.5 billion euros last week, well above an average of 18 billion euros in a Reuters poll on Monday. This was likely due to banks front-loading funds to meet the level of cash they are required to keep at the ECB at the beginning of its maintenance period. The increase in weekly borrowing was unlikely to have much impact on a market that is already flush with cheap three-year cash from the ECB. Interbank rates hit fresh 17-month lows on Tuesday as the excess liquidity from the ECB's two ultra-long financing operations over the past months exerted downward pressure.
Bank-to-bank lending rates have dropped by more than a third over the last few months as a result of the 1 trillion euros the ECB has poured into the financial markets, and they are homing in on record lows they hit in early 2010. 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 to 0.876 percent from 0.884 percent, the lowest level since September 2010. Equivalent Liobr rates also fell.
Rates in other maturities also dropped. Six-month rates fell to 1.183 percent from 1.193 percent and 12-month rates dropped to 1.519 percent from 1.527 percent. One-week rates, the most heavily influenced by the level of cash in the system, held steady at 0.317 percent. Overnight rates slipped to 0.355 percent from 0.359 percent."With so much excess liquidity in the system, we expect Eonia to continue to trade at an approximate 10 basis points spread to the deposit facility and for Euribor fixings to continue drifting lower as tail funding risks have receded," Morgan Stanley strategist Elaine Lin said. The three-month lending rates have already dropped by over a third since the ECB announced plans to lend banks three-year money back in December, but are still well above the low of 0.634 percent they hit in early 2010.
LONDON Dec 12 Short-term money market rates rose on Wednesday as traders lowered expectations of further monetary easing by the European Central Bank after its chief economist said there was limited room for further cuts. Eonia forward contracts, used to speculate on where overnight lending rates will be at specific point in the future, broadly reversed the fall into negative territory seen after last week's ECB meeting. The rate on contracts dated from March next year through to July rose fractionally back above zero as traders reacted to comments from the ECB's Peter Praet. August contracts remained in negative territory. Praet said there was little room to cut the main lending rate below the current record low of 0.75 percent and cautioned over the effects of a cut below zero on the rate the central bank currently pays on deposits.
Those comments dashed expectations of a negative deposit rate which had built up after ECB President Mario Draghi said a depo rate cut had been discussed by the governing council and the bank was operationally ready for such a move.
"(The market) is paring back those expectations of a depo rate cut," said Benjamin Schroeder, strategist at Commerzbank."Maybe they have put too much hope in such discussions and now they are seeing that the ECB itself is seeing little benefit in actually lowering the deposit facility rate," he said, adding the discussion was still open.
Key Euribor bank-to-bank lending rates rose after Praet's comments, with the three-month Euribor rate rising to 0.183 percent compared to 0.181 percent in the previous session. The equivalent Libor rate, set by a smaller panel of banks in London, was 0.12286 percent, up from 0.12071 percent on Monday.
NEW YORK Nov 19 Deferred U.S. interest rates futures rose on Thursday as traders added bets that the U.S. Federal Reserve would raise interest rates very gradually after it ends is near-zero rate policy, possibly as early as December. Traders added holdings of Eurodollar and federal funds futures for delivery in late 2016 into 2017 following the release of the minutes of the Oct. 26-27 meeting of the Federal Open Market Committee, the U.S. central bank's policy-setting group. The FOMC minutes released on Wednesday showed a solid core of central bankers support a possible rate hike in December if the economy improves further. They also signaled a gradual pace of rate hikes after liftoff occurs."The market and the Fed may be on the same page in terms of the odds for a Fed liftoff in December, but it appears the market is guiding to an even shallower pace than the Fed's 'gradual' path," said Alex Manzara, vice president of institutional sales at R. J. O'Brien and Associates.
The December Fed funds contract implied traders see about a 68 percent chance the Fed will raise rates next month, little changed from Wednesday's close.
Fed funds futures for delivery in late 2016 into the first half of 2017 were up 0.5 basis point to 2.5 basis points on the day. Eurodollar futures for delivery in 2017 and beyond were up 1.5 basis points to 9.0 basis points in late trading.
Their gains were supported by comments from Atlanta Fed President Dennis Lockhart."The pace of increases may be somewhat slow and possibly more halting than historic episodes of rising rates," he said in a speech to local business leaders in Atlanta.