Tuesday June 23, 2009
LONDON: The interbank cost of borrowing euros fell to record lows in the runup to the European Central Bank's first one-year refinancing operation, indicating traders expect it to succeed in holding down money market rates. The Long Term Refinancing operation (LTRO) will be announced on Tuesday and allotments will be announced on Wednesday. If the ECB follows the usual pattern, bids will be due by 0730 GMT on Wednesday and the results announced around 0915 GMT.
The euro-denominated three-month London interbank offered rate, Libor, extended last week's decline to a record low of 1.21563 percent at the London fixings, according to the latest daily fixing from the British Bankers' Association. The equivalent sterling Libor rate also eased to a record low on Monday and three-month dollar rates eased.
"The upcoming one-year LTRO from the ECB helped to bring euro and sterling Libor rates lower," said Peter Chatwell, a market strategist at Calyon in London. The offer of 1-year funding at 1 percent from the ECB has grabbed the markets' attention, "hence money market rates are continuing to tend towards the repo rate," he said, adding three-month sterling and euro rates had both broken convincingly below the 1.25 percent level.
Euro zone interest rates will continue to be set at the ECB's monthly policy meetings, but traders expect the long-term refis to influence longer-dated interest rates in the market.
"The key to driving rates lower will be a combination of how much the refi tender will allot as well as how much of those allotted funds will become stored away from sight by banks, and how much will become cash they are willing to lend on," said a dealer in London.
A Reuters poll of traders showed expectations centred on the ECB allotting 300 billion euros in the first 1-year refi and predicted it would be effective in bringing
down rates at the short end of the money curve. Forecasts for the size of the auction ranged from 60 billion euros to as high as 650 billion.
"The 12-month ECB tender will have the strongest impact in the short end of the curve and should underpin the anchoring of rates," said David Schnautz, a market strategist at Commerzbank in Frankfurt. He expects Eonia fixings to be sharply lower by early next month.
The three-month dollar Libor rate eased on Monday but remained above last week's record low. The London-based dealer predicted it would remain around the 0.61 percent area ahead of Wednesday's Federal Open Market Committee meeting. US benchmark rates are in a range of zero to 0.25 percent. "The shorter-dated dollar fixings are under routine month-end pressure, hence the rises in the shortest instruments like overnight, one week and two-week paper," the dealer said. The spreads of three-month London interbank offered rates over OIS rates for dollar, euro and sterling were unchanged.
(Reuters)
LONDON: The interbank cost of borrowing euros fell to record lows in the runup to the European Central Bank's first one-year refinancing operation, indicating traders expect it to succeed in holding down money market rates. The Long Term Refinancing operation (LTRO) will be announced on Tuesday and allotments will be announced on Wednesday. If the ECB follows the usual pattern, bids will be due by 0730 GMT on Wednesday and the results announced around 0915 GMT.
The euro-denominated three-month London interbank offered rate, Libor, extended last week's decline to a record low of 1.21563 percent at the London fixings, according to the latest daily fixing from the British Bankers' Association. The equivalent sterling Libor rate also eased to a record low on Monday and three-month dollar rates eased.
"The upcoming one-year LTRO from the ECB helped to bring euro and sterling Libor rates lower," said Peter Chatwell, a market strategist at Calyon in London. The offer of 1-year funding at 1 percent from the ECB has grabbed the markets' attention, "hence money market rates are continuing to tend towards the repo rate," he said, adding three-month sterling and euro rates had both broken convincingly below the 1.25 percent level.
Euro zone interest rates will continue to be set at the ECB's monthly policy meetings, but traders expect the long-term refis to influence longer-dated interest rates in the market.
"The key to driving rates lower will be a combination of how much the refi tender will allot as well as how much of those allotted funds will become stored away from sight by banks, and how much will become cash they are willing to lend on," said a dealer in London.
A Reuters poll of traders showed expectations centred on the ECB allotting 300 billion euros in the first 1-year refi and predicted it would be effective in bringing
down rates at the short end of the money curve. Forecasts for the size of the auction ranged from 60 billion euros to as high as 650 billion."The 12-month ECB tender will have the strongest impact in the short end of the curve and should underpin the anchoring of rates," said David Schnautz, a market strategist at Commerzbank in Frankfurt. He expects Eonia fixings to be sharply lower by early next month.
The three-month dollar Libor rate eased on Monday but remained above last week's record low. The London-based dealer predicted it would remain around the 0.61 percent area ahead of Wednesday's Federal Open Market Committee meeting. US benchmark rates are in a range of zero to 0.25 percent. "The shorter-dated dollar fixings are under routine month-end pressure, hence the rises in the shortest instruments like overnight, one week and two-week paper," the dealer said. The spreads of three-month London interbank offered rates over OIS rates for dollar, euro and sterling were unchanged.
(Reuters)
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