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More Liquidity Tremors: Overnight EUR Libor Doubles To 1.78%, Highest Since Early 2009
Whether the move in overnight Libor is due to an end of quarter window dressing scramble by the banks who in a Repo 105 fashion are doing their best to seem healthy, or it is due to the recent evaporation of European money market funds which are going into US securities, leaving Europe high and dry, is unclear; what is clear is that overnight EUR Libor just doubled, exploding by an unprecedented 85.5 bps to 1.78%, the highest it has been since early 2009 (see chart). Why is this troublesome: because the USD overnight Libor is at 0.128%, which is to be expected courtesy of the recent very much expected extension on the Fed's swap lines with European banks. But it does beg the question: instead of the traditional shortage of USD on every risk precipice, is there suddenly a massive black hole in overnight EUR funding, and has Chinese buying of euros by the bushel backfired and is about to further hobble European, and US, liquidity.
As a reminder yesterday, General Collateral traded at the lowest rate ever, or -0.002%. Alternatively, this may be a function of the ECB providing less than expected euros in its latest 91 Day Long-Term Refinancing Operation, which saw 265 bidders scramble to secure €132 billion from the ECB. And meanwhile in China, despite all the recent attempt to reestablish liquidity in the market, the 7 and 14 Day SHIBORs both broke their recent downward trend. If this is all simple end of quarter liquidity shoring up, that's fine: thing should get back to normal tomorrow. If, however, the liquidity picture does not change on July 1, it may be time to step away from the keyboard and at least get to know where the nearest emergency exit is.
Overnight LIBOR short term:
and longer term:
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"European money market funds which are going into US securities,
What??? I thought we were putting our funds there!
Round and round we go, were we stop nobody knows.
It all makes so much sense:
1. China who has 10% of the Global GDP is bailing out the world...
2. The US who needs every dollar itself is bailing out the world while they themselves risk a default.
3. Europe who doesn't even know where there money is, is bailing out the world.
and everyone of these 3 is broke...
IT JUST MAKES SO MUCH SENSE!
The article, and everyone else makes the assumption China is a benevolent bailer, 'we just here to help'...well I dont have so much trust China is such a good guy at all in fact I think the opposite is true.
Mr Draghi, do you really wanna raise rates on 7-7?
Honest stupid question: could this be the begin of the same flight back to USD as we had before?
Another stupid question: In-the-old-days 4% overnight EUR Libor was normal, so I'm not sure why 1.78% is scary, compared with the rumors of ECB rates going up to 2%
Don't miss the Squid's take on the EUR http://www.youtube.com/watch?v=UpBfhhrsFXM
Back in 2008, when the ECB rate was over 4%?
http://newsimg.bbc.co.uk/media/images/45537000/gif/_45537930_ecb_rates2_gr466.gif
Whats the spread between the ECB rate and Euribor today compared to then?
Edit: Bank of England rate was well over 4% back then too for the Libor V BoE spread
http://www.marketoracle.co.uk/images/2008/uk-interest-rates-nov2008.gif
A solvency crisis leads to a liquidity crisis, which leads you back to a solvency crisis.
Wowabunga. looks like a 2D shot of the Niagra falls.
Falls, hard is half right. The week isn't done yet and thsi day has just begun in Mammoncity!
Wild times...
ORI
http://aadivaahan.wordpress.com/2011/06/30/desiderata/
Well, I think it is a combination of Trichet inflation "strong vigilance" BS, and some liquidity squeeze for the window dressing thingy.
But if tomorow it stays that way, it will be a signal that the market is expecting liqudity shrinking due to the end of QE2, because banks in the EU are craving for USD liqudity.
someone might lose their job over this, failing to manipulate libor while negotiating a bailout package for a PIG must be a firable offence
EURIBOR/EONIA, no reaction
http://www.homefinance.nl/english/international-interest-rates/eonia-interest-rate.asp
Same with 5Y euro basis swaps.
Simply half yr end effect combined with one day dealy in funds between poor MRO and good LTRO .... ntg to see here ......
.... move along, move along ....
Good explanation with ZeroHedge citation on Barrons.com
Free on Yahoo, subscriber only on Barrons go figure
http://finance.yahoo.com/banking-budgeting/article/113049/calendar-can-trump-fundamentals-barrons;_ylt=AiCbdDMzc6y_cKny_9m7Oum7YWsA;_ylu=X3oDMTE2OXFlMmFwBHBvcwMxMgRzZWMDdG9wU3RvcmllcwRzbGsDaXRzdGhhdHRpbWVv?mod=bb-budgeting&sec=topStories&pos=9&asset=&ccode=
Good explanation with ZeroHedge citation on Barrons.com
Free on Yahoo, subscriber only on Barrons go figure
http://finance.yahoo.com/banking-budgeting/article/113049/calendar-can-trump-fundamentals-barrons;_ylt=AiCbdDMzc6y_cKny_9m7Oum7YWsA;_ylu=X3oDMTE2OXFlMmFwBHBvcwMxMgRzZWMDdG9wU3RvcmllcwRzbGsDaXRzdGhhdHRpbWVv?mod=bb-budgeting&sec=topStories&pos=9&asset=&ccode=
How could we still have liquidity problems?
After all, in this age, can't you just add a few 1s and 0s and re-capitalize?
Who remembers the following?
"The highest 1 week Shibor has ever been is just over 10% back in 2007, right after the quant crash in August of that year. We are confident this all time high will be taken out in a few days."