European Bank Willingness To Offload Liquidity Plunges
As we reported yesterday, the ECB completed a €35 billion one-week liquidity absorbing Term Deposit tender: the amount was set to match the volume of govvie bonds purchased in the prior week, and is the third sequential and growing liquidity reduction exercise by the ECB (following €16.5 billion and €26.5 billion). Digging into the numbers however reveals a troubling trend. While the 68 total bidders in the latest tender round submitted a safe number of bids to take down the entire offered amount, or €73.6 billion, the bid to cover was only 2.1x, a far cry from 3.25x in prior week's tender, and the 10x Bid To Cover in the first liquidity withdrawing exercise. It appears European banks are rapidly losing their interest to trade off liquidity in exchange for a one week Fixed-Term loan. The marginal allotment rate for today's operation ended up at 0.28%, with a max set at 1.00%. As the ECB is likely buying increasing amounts of government debt, we anticipate next week's Fixed-Term tender to be in the €40+ range, and the bid to cover to have a 1 handle, if it is covered at all. Once again the ECB shoots itself in the foot by telegraphing on the liquidity absorbing side, that things within European banks are going from bad to worse. And the fact that the FTDs can be used as collateral in ECB refi operations apparently is not going to help one bit.