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Money markets euribor rates at lowest since march

* Euribor rates hit lowest since March 2011* Trader recommends being long Euribor futures* Complete normalisation of inter-bank market seen unlikelyBy Ana Nicolaci da CostaLONDON, Jan 26 Euro zone bank-to-bank lending rates fell to their lowest in nearly 11 months on Thursday with the European Central Bank poised to offer more 3-year loans in February . The cost of borrowing dollars for three months in the unsecured interbank market eased after U.S. Federal Reserve Chairman Ben Bernanke said on Wednesday the central bank was ready to offer the economy additional stimulus after announcing it would likely keep rates near zero until at least late 2014. Ample central bank liquidity in global financial markets has improved sentiment towards riskier assets even as private creditors and Greece have struggled to reach a deal on debt swap talks, key for the country to avoid a messy default. But banks have remained reluctant to lend to each other."(The Fed verdict) underpins in general the theme that central banks are committed to low rates, are committed to providing the market with liquidity en masse," Norbert Aul, rate strategist at RBC Capital Markets said.

He said there could be further tightening in the spread between 3-month Euribor rates and overnight Eonia rates -- a measure of financial risk -- especially if the European Central Bank also sticks to a very low interest rate environment, with unlimited liquidity. But he added: "A complete normalisation of the interbank market is unlikely."Euro zone bank-to-bank lending rates fell to their lowest since March 2011 to 1.142 percent, and down from 1.149 percent in the previous session. The spread between the 3-month Euribor rate and Eonia overnight rates was 77 basis points, down from 79 basis points the day prior.

"The next major event (is) the 3-year LTRO, that's our focus," a trader said. "We are focusing on what the ECB are trying to achieve at the front-end."The European Central Bank is expected to allot 263 billion euros to banks at its second three-year tender in February, half what they borrowed last month, according to Reuters this month. . But the wide range of foerecast signaled high uncertainty among trader predictions."The Euribor fixings has continued to go lower and lower and I think this has given us a green light to stay very bullish at the front end of the European curve, Euribor futures, i.e. we think that yields are going to be lower for longer like the United States," the trader said. The three-month dollar Libor rate - a key interbank rate for borrowing dollars - fell to 0.5531 percent from 0.5566 percent.

CASH BUFFER The ample liquidity in the financial system and the prospect of more to come has improved appetite towards riskier assets, even as uncertainty over the outcome of Greek debt swap talks remained. Banks borrowed 3.47 billion euros from the ECB overnight, down from 3.62 billion the day prior. They deposited 484.13 billion euros at the deposit facility overnight, down from 485.79 billion euros the day prior."Heavy usage of the deposit facility does not tell us anything about whether banks borrow and lend this money to each other intra-day or over the long term, the only thing we can say is that this money does not get transmitted into the real economy," Alessandro Tentori, head of European fixed income strategy at BNP Paribas said. Greece's tortuous negotiations over a debt swap with private creditors entered a new phase on Thursday with focus on how much the ECB and other public creditors may need to contribute. If the ECB were to take losses on its Greek debt holdings, it would not affect the bank's 3-year liquidity provision, analysts said. But it could have an impact in money markets indirectly if the ECB scaled back its bond purchasing program. It could affect the market "to the extent that (the ECB) probably would have lower capability to buy government bonds in the market and hence the transition of liquidity through the SMP (bond-buying program) would be impaired," Tentori added.

Money markets interbank rates dip as ecb cash fest looms

* Euro interbank rates at 1-year low as tender looms * Feb. 29 last of ECB's 3-year cash injections, for now * Three-month dollar Libor lowest since mid-November By Chris Reese and Emelia Sithole-Matarise NEW YORK/LONDON, Feb 17 Bank-to-bank euro lending rates fell to fresh one-year lows on Friday hit by anticipation ahead of another huge injection of ECB long-term funds into the money market at the end of this month that some traders also bet will boost interbank lending. Having pushed excess liquidity to record levels with the nearly half a trillion euros in three-year funds it pumped into the system in December, the European Central Bank will give banks a second chance to grab ultra-cheap loans on Feb. 29. The ECB liquidity injections, with help from an extension of foreign financial swap lines by the U.S. Federal Reserve, were seen as the driving forces behind the lower interbank lending rates. Interbank rates have dropped by almost a third since the ECB announced plans to lend banks three-year money at rock-bottom rates in long-term refinancing operations. "The LTRO that the ECB has done has made really good progress in trying to ease some of the liquidity strains that were present in Europe," said Thomas Simons, money market economist at Jefferies & Co in New York, adding "it makes sense that the interbank rates would come down." The liquidity rush has headed off a credit crunch and prompted some thawing in interbank activity, although that remains name-specific, with the lingering risk of a disorderly Greek default keeping market participants cautious. "The next LTRO should, especially if it's a large take-up, encourage more lending as lenders will know that the counterparties are adequately liquid," said Kevin Pearce, senior broker at ICAP in London. "Of course a definite resolution to the Greek situation would help. But even now when it looks likely to be sorted, we've seen it go wrong so many times no one is yet convinced." With banks already awash with long-term cash and expectations of demand at the next round matching or even exceeding December's demand, downward pressure on lending rates in the money market continues. 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 1.036 percent from 1.041 percent, hitting the lowest level since January last year. Equivalent London interbank offered rates, set by a smaller panel of banks than Euribor, fixed lower at 0.96536 percent from 0.96821 percent. For latest Libor fixings see Rates in other maturities also dropped. Six-month rates fell to 1.334 percent from 1.339 percent, while 1onger-term 12-month rates dropped to 1.664 percent from 1.669 percent. One-week rates, the most heavily influenced by excess liquidity, which currently stands at a massive 485 billion euros according to Reuters calculations, eased to 0.368 percent from 0.371 percent. Overnight rates fixed at 0.371 percent for the third day running with market participants seeing a gradual decline in the fixings to a trough of 0.33 percent by July/August. Three-month dollar-denominated Libor on Friday fixed at 0.4931 percent, unchanged from Thursday at the lowest since mid-November. ECB shorter-term lending operations have shown banks are beginning to position themselves for the second handout of ultra-cheap three-year cash. Banks more than halved their intake of one-month loans but stocked up on short-term one-week funding, money they can easily flip into the three-year operation. "The repo markets are better and there's enough liquidity for term (funding) in ECB eligible paper and peripheral government bonds," a money market trader said. "The question is whether that will get distributed further to the economy. The ECB were quite clear about getting some of this liquidity to the smaller to medium-sized banks so that may work," he said.

Money markets no shock at ecb status quo, but future cuts eyed

* ECB give no fresh clues on monetary easing prospects* Grim data means trader refuse to rule out rate cut* Lack of Spanish bailout may make December cut less likelyBy William JamesLONDON, Nov 8 The European Central Bank gave money markets no fresh signals that it was ready to lower interest rates in the near future at Thursday's news conference, but traders said prospects for a cut were still alive.

The central bank left rates on hold at 0.75 percent, deferring any change in borrowing costs while it waits for a cue to use its new bond-purchase programme, and stating that inflation is expected to remain above 2 percent throughout 2012. The lack of a strong reaction in financial markets showed the decision broadly confirmed the expectations of traders who borrow and lend money on a short term basis and are heavily influenced by ECB policy. That said, recent grim assessments of the euro zone economy by the European Commission and the admission by ECB President Mario Draghi that unemployment was 'deplorably high' had raised some speculation of a shift in rhetoric towards more cuts.

"Those who were anticipating a change in Draghi's stance at this meeting in the wake of his dovish words, will have been modestly disappointed," said Rabobank strategist Richard McGuire. "Implicitly the door is open but we've got no explicit indication they are set to walk through it."Euribor futures , a measure of interest rate expectations, had rallied by around 4 ticks in the previous session. They only gave up one tick of those gains during the course of the meeting, indicating some disappointment but that heightened expectations of a cut persist.

"The market had showed mounting expectation of further easing from the ECB. Next month will be important for driving the money market. The rally (in expectations) has been quite substantial so there is limited scope for a further rally now," said ING strategist Alessandro Giansanti in Amsterdam. December's meeting will bring an update to its staff forecasts on inflation and growth which could, if they paint an increasingly poor picture of the euro zone, support the argument for more rate cuts. Opposing that view is the ECB's acknowledgement that the 'monetary transmission mechanism', through which lower rates lead to cheaper borrowing throughout the euro zone, is still not functioning effectively. The bank's main tool targeted at improving this mechanism is a bond buying programme aimed at distressed countries like Spain, but this will not come into effect until they ask for and receive a euro zone bailout package -- a prospect that looks unlikely in the near term.

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 short term funding conditions improve

* Funding conditions for non-U.S. banks improve * Demand ebbs for 3-month part of Fed's liquidity swap lines * Euribor rates hit 16-month low; may fall to record By Ellen Freilich NEW YORK, March 5 A drop in demand for three-month dollars the European Central Bank auctioned to replace money it lent to European banks in December shows non-U.S. banks' access to short-term funding has improved. The ECB made the loans through the Federal Reserve's central bank dollar liquidity swap program, originally started in December 2007 to address severe strains in global short-term dollar funding markets. Demand in the most recent auction for three-month dollars offered by the ECB through the program fell to less than a third of what it was in December as European banks rolled over just $14.5 billion of the $51 billion in maturing loans. "In December, people wanted to make sure they had dollars for year end, but at the replacement auction, they only replaced about $14 billion of it and the total amount outstanding in the Fed's liquidity program will go down as a result," said Joseph Abate, market analyst at Barclays Capital in New York. The development is consistent with Libor rates, which have been easing, and a rise in both the level and average duration of financial commercial paper outstanding. All the trends suggest the "the sense of urgency about getting dollars has abated a little bit," Abate said. That auction of three-month paper occurred against the backdrop of the ECB's longer-term refinancing operation and augurs well for banking system stability. "The LTROs (Long Term Refinancing Operation) were extremely effective against having another Lehman-type freeze up," said James Kee, chief economist at South Texas Money Management in San Antonio, Texas, refering to the Wall Street investment firm whose collapse in 2008 is thought to have played a major role in the global financial crisis. "We're not out of the woods yet, but I'm hoping market moves (on funding concerns) will become less and less severe as markets become more and more convinced that the global financial system is not at risk of collapse," Kee said. Abate said markets are in a multi-year period where fear intensifies and then settles down again. The Fed re-established its central bank dollar liquidity swap program when funding strains re-emerged in May 2010. The swap lines have been extended several times since then. "The Fed doesn't want its central bank liquidity swap lines to become permanent, but it hasn't been able to build the escape velocity to leave this all behind," he said. "Things start to get better and then some other exogenous shock comes and knocks the market back on its heels again. "You need to get confidence restored so people wouldn't hoard liquidity every time something happens," he said. The ability of European banks to fund dollar-denominated assets they own in the private market has improved and interbank lending rates could keep heading lower as a result, said Pierre Ellis, senior economist at Decision Economics. Euro zone interbank lending rates headed toward record low levels on Monday. But liquidity is not the whole story and thus the declines could start to occur more gradually, Ellis said. "The liquidity issue for European banks has been resolved, but now you're looking at the inherent risk of their portfolios which is tied to the outlook for the European economy," he said. Three-month Euribor fixed at a fresh 16-month low of 93.4 basis points on Monday. The rate has fallen every day since Dec. 19, declining by nearly 50 bps in that period. Euribor futures showed the rate was forecast to be 82 bps at the March contract expiry on March 19. In the U.S. short-term debt markets, prospects for lower repo rates into the end of the month and for reduced bill supply heading into the middle of the second quarter partnered with attractive yields to draw buyers to the Treasury's auctions of three-month bills last week and this week, said Thomas Simons, money market economist at Jefferies & Co. Demand for the six-month Treasury bill auction was less fervent.

Money markets spanish downgrade not seen hitting us debt market, yet

(Adds strategist's quotes, releads story) * S&P cuts 11 Spanish banks, threatens five more * Further Spanish sovereign cuts seen hitting markets By Chris Reese and Kirsten Donovan NEW YORK/LONDON, April 30 The Standard & Poor's credit downgrade of Spain last week should have little immediate impact on U.S. money markets, although further downgrades co uld pressure investors to sell Spanish debt, a J. P. Morgan Securities strategist said on Monday. Following its downgrade of Spain's rating by two notches last week, ratings agency S&P on Monday downgraded 11 Spanish banks and warned a further five that their ratings could also be cut. The downgrade of Spain's sovereign debt was expected to have no direct impact on U.S. funding markets as "the large Spanish banks have been inactive in the U.S. money markets for nearly a year," said Alexander Roever, short-term fixed income strategist at J. P. Morgan Securities in New York. Roever cautioned, however, that any further downgrades could damage Spain's ability to sell debt and impact markets globally. "Any more downgrades that would lead Spain to fall into the sub-investment grade category would have large implications for the markets as it will re sult in Spain being excluded from some bond indices and thereby force passive asset managers to sell," R oever said. Spanish banks continued to load up on government bonds in March, data from the European Central Bank data showed on Monday, tying the banks ever closer to their indebted sovereign and raising questions over who will support the government when cheap central bank funding is exhausted. The value of Spanish banks' holdings of sovereign bonds rose almost 18 billion euros in March to over 260 billion euros. That is up around 85 billion euros in total since the end of November as institutions invested cheap funds from the European Central Bank's two three-year liquidity operations, the long-term refinancing operations known as LTROs. Much of the rise is widely believed to be domestic banks buying their own country's sovereign bonds, with some of the increase accounted for by changes in market value of the paper. Spanish government bonds have sold off sharply in April on growing concerns about the country's ability to meet fiscal targets and its leveraged banking sector. If Spanish banks continued to be net buyers of the paper in April, it would indicate that selling by international investors was picking up pace. "The domestic banks stepped in to bridge the gap which was left by a fairly sizeable exodus of non-residential bondholders, which is why the LTRO magic has worn off so quickly," said Richard McGuire, senior fixed income strategist at Rabobank in London. Spain sank into recession in the first quarter, data showed on Monday. And on Friday a government source said banks, rather than the government, would assume the cost of any unprovisioned losses on real estate assets after they are moved into a special holding company. "We're still focusing on early cycle losses such as the real estate loans which come to light quite quickly in a downturn," McGuire said. "But there's later cycle losses that we've yet to dive into such as corporate loans as the country returns to recession." Still, with Spain and other European countries like Italy and Greece on shaky financial ground, the situation remained precarious for Europe as a whole. "Even though the LTROs have helped to stabilize Europe's banks and the global interbank markets, they did not fix the underlying fiscal and political issues," Roever said. "By swapping cash for collateral, the ECB fed the global liquidity glut that has too much cash chasing too few assets," he added. "If peripheral sovereign markets continue to deteriorate and political solutions are not reached, palliative central bank responses like further bond purchases or another LTRO eventually could be forthcoming, further feeding the liquidity glut."