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Euribor And Libor Jump Across The Board As ECB Decides To Keep Rate At 1%

Tyler Durden's picture




 

Another day, another tightening in European interbank liquidity. The Euribor rate fixing jumped across the board: 1 week went up from 0.564% to 0.565%, 3 Month rose from 0.9% to 0.904% on its resolute ascent to 1%, and 6 Month rose from 1.149% to 1.152%. And not to leave the latest bout of EUR covering unattended, Libor also decided to join the festivities: from Market News "The euro 3-month LIBOR rate rose 0.19 basis points on the day to stand at 0.83219, still well below the official 1% key policy rate. Three month LIBOR/OIS spreads in dollar, euro and sterling have all converged into a narrow range, of just under 1.5 basis points, with the dollar spread at 23.9 basis points, euro just under 24.7 bps and sterling at 25.4 bps. The euro spread narrowed by 1.2 basis points Thursday, with the 3 month OIS rate up 1.4 basis points." Once Euribor passes the ECB rate, then we have a big problem... There is just 0.096% to go.

 

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Thu, 08/05/2010 - 08:17 | 504227 Figaro300
Figaro300's picture

 

Thu, 08/05/2010 - 08:19 | 504228 homersimpson
homersimpson's picture

Interesting. It's almost like the Euro markets go up everytime the EURIBOR/LIBOR does.

Thu, 08/05/2010 - 08:21 | 504230 ricksventures
ricksventures's picture

and what exactly would the problem be ? (still learning about these things)

all private bank would borrow from ECB rather than each other ? and why would that be the problem ? more printing presses rolling ?

Thu, 08/05/2010 - 08:32 | 504237 TLT
TLT's picture

I don't think ECB can lend to everyone. There's a limited amount to lend.

But it'll be interesting to see what happens.

But governments will surely have a nice solution: print more.

Thu, 08/05/2010 - 08:37 | 504248 ricksventures
ricksventures's picture

limited amount ? not when all you need is print more right ?

you mean governments of EU ? they individually print as well, however how much control does ECB have over how much do they print ?

Thu, 08/05/2010 - 09:23 | 504323 TLT
TLT's picture

I really don't know. But maybe there's some criteria to lend. Maybe not every institution can get it's "share". Maybe there's a constitutional limit.

But what I meant is that if there's any block, they'll pass anything to increase the total borrowing, for sure.

Thu, 08/05/2010 - 08:23 | 504233 ricksventures
ricksventures's picture

Why would banks lend money to other private banks with under 1% profit when they can get much more from the private consumers and businesses ? (just an amateur question)

Thu, 08/05/2010 - 10:05 | 504392 MarkS
MarkS's picture

European banks are different than US banks in numerous ways. 

For starters, prior to the crisis they carried about twice the leverage of US banks, now they carry about 4 times leverage of US banks because they weren't required to cut like US banks.

Second, they are a much bigger player in the corporate debt market than US banks - European companies do much more bank financing than US companies.  US companies issue far more bonds while European companies take far more loans.

Third, there is no overriding central authority for European banks, they are regulated by their own country - which is why the 'stress tests' were nothing of the sort.  Each country's banks essentially did their own - shocker that so few failed (especially the German Landesbanks).

Fourth, technically the ECB can't just print money like the US Treasury.  While (4?)ECB banks can issue currency it is a different system than the US because the EU isn't a 'country' (its more of a gaggle) and they can't issue like the US Treasury and have the FED buy the excess.

So the reason that the rising rate is important is because it is a barometer of how much the banks trust each other versus taking their cash and putting it IN the ECB at 1% rather than loan it to each other because:

1.  They know that they are all over leveraged

2.  They all know that they hold crap

3.  They don't trrust each other

4.  The ECB will take any steaming pile of poop that you give them and give you close to par value with a minor haircut.

 

 

 

 

Thu, 08/05/2010 - 08:27 | 504235 LeBalance
LeBalance's picture

Overall, in a world that made sense, sphinters would be tightening and money lending would be dying.  But because this is bizarro land (and we are all up on our 1770-1790 French history) we all know this is just another swoon to prompt more money printing.

Thu, 08/05/2010 - 08:33 | 504242 ricksventures
ricksventures's picture

so everything today points to more more more money printing which should (logically) turn into hyperinflation but hyperinflation leads to loss of control, unless we thing of western leaders to act like mugabe in zimbabwe, however what are the chances of western leaders being able to control the west under hyperinflation and what are the chances of civil war in USA ??? at the same time business still grows, people still buying new car models, still vacationing, still looking forward to better future and unlimited opportunities and all so I am not sure how it ends

Thu, 08/05/2010 - 10:55 | 504468 Trichy
Trichy's picture

Rick,

Don't make the mistake of thinking ECB will be allowed to act as the Fed. The memory of out of control hyperinflation is still fresh in the memory of the Germans, who will rather sacrifice the Euro than let that happen. The ECB back-stop is currently only directed towards soveriegn debt issues and I doubt they will extend it to troubled institutions. That ties the hands of the ECB as clearing house and to enter flat out into interbank lending. 

Thu, 08/05/2010 - 08:52 | 504276 aus_punter
aus_punter's picture

so euribor went up 1/200th of a percent - thats newsworthy ?

Thu, 08/05/2010 - 09:06 | 504296 mephisto
mephisto's picture

We are close enough to 1% for the spread in the auction to touch that level - ie one day soon, a participating bank will offer over 1%. Anyone for a sweepstake on who that will be?

Thu, 08/05/2010 - 09:05 | 504297 Internet Tough Guy
Internet Tough Guy's picture

That's odd; primefool just told me the world outside the US is fabulous, dahling.

Thu, 08/05/2010 - 11:54 | 504636 iPood
iPood's picture

Sorry to keep posting this question every time we discuss the euribor spike (near 2010 highs), but would love to hear an informed opinion re the reason for the spike, since 3-month eurodollar is at 2010 lows and, as the post points out, spreads are relatively contained. Thank you!

Fri, 08/06/2010 - 10:07 | 507070 Trichy
Trichy's picture

The European banks aren't lending to each other. I would guess the EurUsd lows are due to the Fed opened the floodgates again.

Fri, 08/06/2010 - 08:05 | 506736 Grand Supercycle
Grand Supercycle's picture

Interesting SP500 chart ...

http://stockmarket618.wordpress.com

Sat, 10/09/2010 - 10:02 | 637634 senthil456
senthil456's picture


There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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