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Another Day, Another Worsening In European Interbank Lending: 3M Euribor At 0.896% From 0.893%
With each passing day, the interbank ledning market in Europe gets worse as the shadow economy's unravelling accelerates: 3 Month Euribor just hit a fresh high of 0.896% versus the prior 0.893%. In relates news, ECB said in its July Bank Lending Survey that banks once again unexpectedly tightened credit standards in the second quarter, as the sovereign debt crisis affected their ability to obtain funding even while the economic recovery sparked a pick-up in demand for loans. We fail to see how banks' unwillingness to lend in light of knowing full well all their counterparties are insolvent save for the ECB's perpetual backstop, is unexpected. Elsewhere, the WSJ discusses how "rate swings sting Europe's borrowers" and finally catches up with a theme we have long discussed, namely that rampant, and currently unsustainable, foreign-denominated borrowing in Europe's peripheral countries is causing huge pain for borrowers, and will soon lead to major dislocations in the FX markets once again as the creditor banks (all of them stress test urban achievers mind you) find themselves sitting on trillions worth of goose eggs.
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Tyler, any historical numbers associated with this - specifically previous highs? Also interested in whether there is a 'stress' (for want of a better or more topical word) number, at which point it all grinds to a complete standstill?
Its not my asset class, but 'd suggest having the 3 month rate over the 1% benchmark, when there is 0% chance of a rate hike, would be fairly fucked up. We could be there in about a month.
http://www.bloomberg.com/apps/quote?ticker=EUR003M:IND
Thanks guys. That puts it into perspective. So it could have some way to go then. Along with the increased usage of the ECB overnight facility, banks are still not lending to each other, despite all the smiley stars handed out to them last week...
Yes. Historically it is very low ATM; but remember you need to adjust it for the benchmark rate; or in this case Bunds. Most probably x < 1y maturity. x ∈ T such that 0 < T < 1. Think 13 week, 26 week Bunds.
http://www.homefinance.nl/english/international-interest-rates/euribor-r...
Euribor is a long way from historic highs but the trajectory is following the same path it took in 2008. It's just another warning sign and much more reliable an indicator that LIBOR now, IMHO.
http://www.ecb.int/stats/monetary/rates/html/index.en.html
Don't forget consider the Euro's interest rate to get a more objective view.
Absolutely. Plus one has to analyze the volume of interbank lending to see if this is meaningful. Inside the U.S. interbank lending is pretty much non-existent.
5bln in expiries today for 1.2850's in eur/usd...i have been waiting all morning for the plunge, it might still happen.
just reading that article "rate swings sting EU borrowers" to see how stupid the average retail investor / borrower has become not just in europe but across the globe. trading in florints but borrowing in SF's with no hedging? WTF did they think would happen?
I hate to say it but these morons deserve to lose money. Be interesting to see just how many got sucked into borrowing in foreign currency to 'take advantage" of lower interest rates.
it's plain simply a FX carry trade for the little eastern european guy, and those among them who did not realize this at the time they made their bet are just contributing to the global phenomenon called "moron hazard".
Don't we have any sympathy for "the small people" anymore?
"unexpectedly tightened lending standards".
Those kind of lies are the worst.
Unexpectedly. A surprise to the ECB.
What a joke.
But interestingly, by my observation, fixed-income seems a much more stubborn, value oriented indicator of the state of the state of our financial world.
The true rubber hits the road metric. And as pointed out, it's telling a story. Stretchhhhhhed!
ORI
http://aadivaahan.wordpress.com
risky loans and a carry trade kicker..unbeleivable. least in US they sink you with only the debt torpedo.
OTOH, back in dollarstan, Libor - OIS spread has been plunging since mid July : http://www.bloomberg.com/apps/quote?ticker=.LOIS3:IND
This and CP yields going up are keeping money markets afloat. Maybe the ECB is letting wholesale funding normalize.
If so roll risk goes down, but bank margins get compressed.
Just a thought.
Why have three month eurodollar rates decoupled from this, since those rates should also reflect Euro Zone bank solvency risk and the contagion effect? Apologize if I am missing something basic, but eurodollar rates certainly spiked during the height of the Greek banking crisis. Thanks